The following information relates to the Cliff Division of Mountain Enterprises:
Income for the period just ended: $1,500,000
Invested capital: $12,000,000
If the company has an imputed interest rate of 11%,Cliff's residual income would be:

Question

Quizplus · Accepted Answer

Residual income is calculated as the income minus the imputed interest on invested capital. The imputed interest is 11% of $12,000,000, which is $1,320,000. Therefore, the residual income is $1,500,000 - $1,320,000 = $180,000.

The Following Information Relates to the Cliff Division of Mountain