Payne Company reported the following information for the current year: $$\begin{array} { l l}
\text { Sales } & \$ 1,600,000 \
\text { Average Operating Assets } & \$ 500,000 \
\text { Desired ROI } & 14 \% \
\text { Net Income } & \$ 85,000
\end{array}$$ The company's residual income was:
A) $(15,000).
B) $14,000.
C) $15,000.
D) $24,000.

Question

Payne Company reported the following information for the current year: $$\begin{array} { l l} 
\text { Sales } & \$ 1,600,000 \
\text { Average Operating Assets } & \$  500,000 \
\text { Desired ROI } &  14 \% \
\text { Net Income } & \$ 85,000
\end{array}$$ The company's residual income was:
A) $(15,000).
B) $14,000.
C) $15,000.
D) $24,000.

Quizplus · Accepted Answer

Residual income is calculated as the Net Income minus the product of the Desired ROI and the Average Operating Assets. Here, it's $85,000 - (14\% 	imes $500,000) = $85,000 - $70,000 = $15,000.

Payne Company Reported the Following Information for the Current Year