Sun,Inc.has average total assets of $300,000.The annual operating income of the company is $125,000.The target rate of return for the company is 15%.Calculate the residual income.
A)$45,000
B)$175,000
C)$18,750
D)$80,000

Question

Quizplus · Accepted Answer

D)
RI = Operating income - Minimum acceptable operating income
 11ea86d6_82b4_c65e_92b6_8f3162df8324_TB2804_00 Minimum acceptable operating income = Target rate of return × Average total assets
Minimum acceptable operating income = 15% × $300,000 = $45,000

Sun,IncHas Average Total Assets of $300,000