The Seasonal Division of The Hudson Bay Department Store had a net income of $660,000,a net asset base of $5,000,000,and a required rate of return of 10%.Sales for the period totalled $4,00,000.What was the residual income for the period?
A)$80,000
B)$160,000
C)$360,000
D)$480,000

Question

Quizplus · Accepted Answer

Residual income is calculated as Net income - (Required rate of return x Net asset base).
Net income = $660,000
Required rate of return = 10%
Net asset base = $5,000,000
Required rate of return x Net asset base = 10% x $5,000,000 = $500,000
Residual income = $660,000 - $500,000 = $160,000
Therefore, the correct answer is choice B.

The Seasonal Division of the Hudson Bay Department Store Had