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12 January, 09:01

Mike Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 14%. In January, the Commercial Products Division had average operating assets of $970,000 and net operating income of $143,700. What was the Commercial Products Division's residual income in January?

Multiple Choice

A. $7,900

B. ($20,118)

C. $20,118

D. ($7,900)

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Answers (1)
  1. 12 January, 12:23
    0
    Residual income = $7900

    so correct option is A. $7,900

    Explanation:

    given data

    rate of return = 14%

    average operating assets = $970,000

    net operating income = $143,700

    to find out

    What was the Commercial Products Division's residual income

    solution

    we get here Minimum net operating income that is

    Minimum net operating income = rate of return * average operating assets ... 1

    put here value

    Minimum net operating income = 14% * $970,000

    Minimum net operating income = $135,800

    and

    so Residual income will be here as

    Residual income = net operating income - Minimum net operating income

    Residual income = $143,700 - $135,800

    Residual income = $7900

    so correct option is A. $7,900
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