Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:

The company's desired rate of return is 10%. Income is defined as operating income.
What are the respective residual incomes for the North and South Divisions?
A) $60,000 and $100,000
B) $300,000 and $60,000
C) $300,000 and $100,000
D) $500,000 and $700,000

Question

Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:

The company's desired rate of return is 10%. Income is defined as operating income.
What are the respective residual incomes for the North and South Divisions?
A) $60,000 and $100,000 
B) $300,000 and $60,000 
C) $300,000 and $100,000 
D) $500,000 and $700,000

Quizplus · Accepted Answer

North Division = $1,900,000 - (0.1 × $14,000,000) = $500,000
South Division = $1,800,000 - (0.1 × $11,000,000) = $700,000

Care Inc, Has Two Divisions That Operate Independently of One Another