Residual income compares the division's actual operating income with the minimum operating income expected by top management for the given size of the division's average total assets.

Question

Quizplus · Accepted Answer

This is an accurate description of residual income. It is calculated by subtracting the minimum required rate of return from the actual rate of return, multiplied by the division's average total assets. If the result is positive, then the division is generating excess income beyond what is expected by top management.

Residual Income Compares the Division's Actual Operating Income with the Minimum