The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last year was:
A) $20,000
B) $l8,000
C) $5,000
D) $2,000

Question

Quizplus · Accepted Answer

Residual income is calculated as net operating income minus the product of average operating assets and the minimum required rate of return. Here, it is $20,000 - ($150,000 * 12%) = $20,000 - $18,000 = $2,000.

The Northern Division of the Smith Company Had Average Operating