30 August, 06:49

# 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 ChoiceA. \$7,900B. (\$20,118)C. \$20,118D. (\$7,900)

+2
1. 30 August, 08:48
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