The Northern Division of the Smith Company had average operating assets totalling $150,000 last year.If the minimum required rate of return is 12% and if last year's net operating income at Northern was $20,000,then the residual income for Northern last year was?

Question

Quizplus · Accepted Answer

Residual income is calculated as the net operating income minus the minimum required return on operating assets. The minimum required return is 12% of $150,000, which is $18,000. Therefore, the residual income is $20,000 - $18,000 = $2,000.

The Northern Division of the Smith Company Had Average Operating