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

Question

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

Quizplus · Accepted Answer

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

Payne Company Reported the Following Information for the Current Year