The West Division of Frede Corporation had average operating assets of $700,000 and net operating income of $120,800 in December. The minimum required rate of return for performance evaluation purposes is 16%.
-What was the West Division's residual income in December?
A)$8,800
B)$(19,328)
C)$(8,800)
D)$19,328

Question

Quizplus · Accepted Answer

Residual income is calculated as net operating income minus the product of average operating assets and the minimum required rate of return. Here, it is $120,800 - ($700,000 * 0.16) = $120,800 - $112,000 = $8,800.

The West Division of Frede Corporation Had Average Operating Assets