The Clydesdale Company has sales of $4,500,000. It also has invested assets of $2,000,000 and operating expenses of $3,600,000. The company has established a minimum rate of return of 7%. What is Clydesdale Company's residual income?
A) $252,000
B) $900,000
C) $1,400,000
D) $760,000

Question

Quizplus · Accepted Answer

Residual income = Net income - (Minimum rate of return x Invested assets)
Net income = Sales - Operating expenses
Net income = $4,500,000 - $3,600,000
Net income = $900,000

Residual income = $900,000 - (0.07 x $2,000,000)
Residual income = $760,000

The Clydesdale Company Has Sales of $4,500,000