Jacksonville Company Jacksonville Company has established a target rate of return of 15% for all divisions.For the most recent year,Mandarin Division generated sales of $12,000,000 and expenses of $9,000,000.Total assets at the beginning of the year were $7,000,000 and total assets at the end of the year were $9,000,000.
Refer to Jacksonville Company.In the most recent year,what was Mandarin Division's residual income?

Question

Quizplus · Accepted Answer

Residual income = Net operating income - (Total assets x Target rate of return)
Net operating income = Sales - Expenses = $12,000,000 - $9,000,000 = $3,000,000
Total assets = (Beginning assets + Ending assets) / 2 = ($7,000,000 + $9,000,000) / 2 = $8,000,000
Target rate of return = 15%
Residual income = $3,000,000 - ($8,000,000 x 0.15) = $1,800,000
Therefore, the answer is C.

Jacksonville Company Jacksonville Company Has Established a Target Rate of Return