Answer the following question(s)using the information below:
Carriage Ltd.manufactures baby carriages.The company has two divisions, Wheels and Assembly.Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures.The following information is provided for the year just ended:
The company is currently using a 12% required rate of return.
-What are Wheels's and Assembly's residual incomes based on book values, respectively?
A)$74,000; $28,500
B)$61,800; $70,000
C)$63,500; $59.500
D)$28,500; $74,000
E)$101,800; $70,000

Question

Answer the following question(s)using the information below:
Carriage Ltd.manufactures baby carriages.The company has two divisions, Wheels and Assembly.Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures.The following information is provided for the year just ended:
  The company is currently using a 12% required rate of return.
-What are Wheels's and Assembly's residual incomes based on book values, respectively?
A)$74,000; $28,500 
B)$61,800; $70,000 
C)$63,500; $59.500 
D)$28,500; $74,000 
E)$101,800; $70,000

Quizplus · Accepted Answer

Residual income based on book value formula = Net Income - (Required Rate of Return × Book Value)

For Wheels division:
Net Income = $110,000
Book Value = $900,000

Residual Income = $110,000 - (0.12 × $900,000) = $61,800

For Assembly division:
Net Income = $135,000
Book Value = $800,000

Residual Income = $135,000 - (0.12 × $800,000) = $70,000

Therefore, the best choice is B as it provides the correct residual incomes for both divisions based on book values.

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