Continental Publishing Company
The Magazine Division of Continental Publishing Company had the following financial data for the year:
$\begin{array}{ll}
\text { Assets available for use } & \$ 1,000,000 \text { Book Value } \
& \$ 1,500,000 \text { Market } V \text { alu } \
\text { Residual income } & \$ 100,000\
\text { Return on innvestment } & 15\%
\end{array}$

Refer to Continental Publishing Company.What was the Magazine Division's segment income?
A)$150,000
B)$100,000
C)$250,000
D)$ 50,000

Question

Continental Publishing Company
The Magazine Division of Continental Publishing Company had the following financial data for the year:
$\begin{array}{ll}
\text { Assets available for use } & \$ 1,000,000 \text { Book Value } \
& \$ 1,500,000 \text { Market } V \text { alu } \
\text { Residual income } & \$ 100,000\
\text { Return on innvestment } & 15\%
\end{array}$

Refer to Continental Publishing Company.What was the Magazine Division's segment income?
A)$150,000
B)$100,000
C)$250,000
D)$ 50,000

Quizplus · Accepted Answer

The segment income can be calculated using residual income. Residual income is the income that exceeds the minimum required return on assets. The minimum required return is calculated by multiplying the assets available for use by the required rate of return, which is 15% in this case.
Minimum Required Return = Assets available for use x Required Rate of Return
Minimum Required Return = $1,000,000 x 0.15
Minimum Required Return = $150,000
Residual Income = Segment Income – Minimum Required Return
$100,000 = Segment Income – $150,000
Segment Income = $250,000
Therefore, the Magazine Division's segment income is $250,000. Choice A is the correct answer.

Continental Publishing Company the Magazine Division of Continental Publishing Company

Continental Publishing Company
the Magazine Division of Continental Publishing Company