Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Assume a target income of 10% of average invested assets. Compute residual income for the division:
A) $197,500.
B) $193,000.
C) $60,300.
D) $203,000.
E) $150,500.

Question

Quizplus · Accepted Answer

First, we need to calculate the target income:
Target Income = 10% x $4,100,000 = $410,000
Next, we can calculate the division's net income:
Net Income = Sales - Cost of goods sold - Operating expenses
Net Income = $4,525,000 - $2,550,000 - $1,372,000
Net Income = $603,000
Finally, we can calculate the division's residual income:
Residual Income = Net Income - Target Income
Residual Income = $603,000 - $410,000
Residual Income = $193,000

Therefore, the best choice is B.

Carter Company Reported the Following Financial Numbers for One of Its