Exhibit 19-5 Ridgeline Corporation has the following operating data for the year:

-Refer to Exhibit 19-5. Given the above data for Ridgeline Company, what is the residual income assuming the minimum rate of return on assets is 10%?

Question

Exhibit 19-5 Ridgeline Corporation has the following operating data for the year:
 
-Refer to Exhibit 19-5. Given the above data for Ridgeline Company, what is the residual income assuming the minimum rate of return on assets is 10%?

Quizplus · Accepted Answer

Residual income = Net operating income - (Minimum rate of return x Total assets)
Residual income = $399,000 - (0.10 x $3,660,000)
Residual income = $399,000 - $366,000
Residual income = $33,000

Therefore, the residual income assuming the minimum rate of return on assets is 10% is $33,000. The closest answer choice to this calculation is C ($213,000), which is incorrect. None of the answer choices reflect the correct residual income calculation, so none of them are the best choice.

Exhibit 19-5 Ridgeline Corporation Has the Following Operating Data for the Year