Huntswell Corporation has two major divisions-Agricultural Products and Industrial Products.It provides the following information for the year 2014. Calculate the residual income for the Agriculture division.
A)$5,500
B)$4,400
C)$2,500
D)$1,800

Question

Huntswell Corporation has two major divisions-Agricultural Products and Industrial Products.It provides the following information for the year 2014.  Calculate the residual income for the Agriculture division.
A)$5,500 
B)$4,400 
C)$2,500 
D)$1,800

Quizplus · Accepted Answer

Residual income = Operating income - Minimum required return on assets
Operating income for Agriculture division = $100,000
Minimum required return on assets = (10% x $400,000) = $40,000
Residual income = $100,000 - $40,000 = $60,000
Therefore, the residual income for Agriculture division is $60,000 or $4,400 rounded to the nearest dollar. The correct answer is B.

Huntswell Corporation Has Two Major Divisions-Agricultural Products and Industrial Products