Joseph Company reported the following information for the current year: $$\begin{array} { l c c }
\text { Sales } & \$ 787,000 \
\text { Average Operating Assets } & \$ 375,000 \
\text { Desired ROI } & 12 \% \
\text { Residual Incone } & \$ 11,250
\end{array}$$ The company's operating income was:
A) $94,440.
B) $56,250.
C) $45,000.
D) $33,750.

Question

Joseph Company reported the following information for the current year: $$\begin{array} { l c c } 
\text { Sales } & \$ 787,000 \
\text { Average Operating Assets } & \$ 375,000 \
\text { Desired ROI } &  12 \% \
\text { Residual Incone } & \$ 11,250
\end{array}$$ The company's operating income was:
A) $94,440.
B) $56,250.
C) $45,000.
D) $33,750.

Quizplus · Accepted Answer

The company's operating income can be calculated using the formula for residual income: Residual Income = Operating Income - (Average Operating Assets * Desired ROI). Rearranging the formula to solve for Operating Income gives: Operating Income = Residual Income + (Average Operating Assets * Desired ROI). Plugging in the given values: Operating Income = $11,250 + ($375,000 * 12%) = $11,250 + $45,000 = $56,250.

Joseph Company Reported the Following Information for the Current Year