Carriage Incorporated manufactures horse carriages. The company has two divisions, Wheels and Assembly. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2018:
ASSETSINCOME

The company is currently using a 12% required rate of return.
What are Wheels's and Assembly's residual incomes based on book values, respectively?
A) $71,400; $81,800
B) $81,800; $71,400
C) $68,000; $51,000
D) $51,000; $68,000

Question

Carriage Incorporated manufactures horse carriages. The company has two divisions, Wheels and Assembly. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2018:
ASSETSINCOME

The company is currently using a 12% required rate of return.
What are Wheels's and Assembly's residual incomes based on book values, respectively?
A) $71,400; $81,800 
B) $81,800; $71,400 
C) $68,000; $51,000 
D) $51,000; $68,000

Quizplus · Accepted Answer

Book value RI:
Wheels:	$140,000 - ($485,000 × 0.12)) = $81,800
Assembly:	$165,000 - ($780,000 × 0.12) = $71,400

Carriage Incorporated Manufactures Horse Carriages