Imagination Corporation uses residual income to evaluate the performance of its divisions. Imagination's minimum required rate of return is 11%. In April, the Commercial Products Division had average operating assets of $100,000 and net operating income of $9,400. What was the Commercial Products Division's residual income in April?
A) $(1,600).
B) $1,600.
C) $1,034.
D) $(1,034).

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 $9,400 - ($100,000 * 11%) = $9,400 - $11,000 = -$1,600.

Imagination Corporation Uses Residual Income to Evaluate the Performance of Its