Richard's Division of Richard and Sons has the following data related to a particular period:
Calculate the amount of residual income for the period.

Question

Quizplus · Accepted Answer

Residual income is calculated as net income minus (average total assets multiplied by the minimum required rate of return). 
Net income = $260,000 
Average total assets = ($1,200,000 + $1,800,000)/2 = $1,500,000 
Minimum required rate of return = 12% 
Residual income = $260,000 - ($1,500,000 x 0.12) = $7000

Richard's Division of Richard and Sons Has the Following Data