The Women's Wear of Bigelow Department Store had a net income of $560,000, a net asset base of $4,000,000, and a required rate of return of 12 percent. Sales for the period totaled $3,000,000. The residual income for the period is
A)$480,000.
B)$80,000.
C)$120,000.
D)$360,000.

Question

Quizplus · Accepted Answer

Residual income is calculated as the net income minus the product of the required rate of return and the net asset base. Here, it is $560,000 - (12% of $4,000,000) = $560,000 - $480,000 = $80,000.

The Women's Wear of Bigelow Department Store Had a Net