Assume that Division X has generated sales revenue of $3,025,000 and achieved income from operations of $242,000 using $1,800,000 of invested assets. If management desires a minimum rate of return of 12%, the residual income would be:
A) $26,000.
B) $29,040.
C) $147,000.
D) $186,960.

Question

Quizplus · Accepted Answer

Residual income is calculated as the income from operations minus the product of the invested assets and the minimum rate of return. Here, $242,000 - ($1,800,000 * 12%) = $242,000 - $216,000 = $26,000.

Assume That Division X Has Generated Sales Revenue of $3,025,000