Correll Company has two divisions, A and B.Information for each division is as follows: What is the residual income for A?
A) $40,000
B) $25,000
C) $15,000
D) $28,000

Question

Correll Company has two divisions, A and B.Information for each division is as follows:  What is the residual income for A?
A) $40,000 
B) $25,000 
C) $15,000 
D) $28,000

Quizplus · Accepted Answer

Residual income for division A = Division A earning - (Division A assets x required rate of return) 
= $200,000 - ($1,000,000 x 12%) 
= $200,000 - $120,000 
= $80,000

Residual income for division B = Division B earning - (Division B assets x required rate of return) 
= $240,000 - ($1,200,000 x 12%) 
= $240,000 - $144,000 
= $96,000

Total residual income = $80,000 + $96,000 
= $176,000

Therefore, the residual income for division A is $80,000, which is option B.

Correll Company Has Two Divisions, a and B