The following data has been provided for a company's most recent year of operations: The residual income for the year was closest to:
A) $20,000
B) $3,000
C) $5,000
D) $15,000

Question

The following data has been provided for a company's most recent year of operations:  The residual income for the year was closest to:
A) $20,000 
B) $3,000 
C) $5,000 
D) $15,000

Quizplus · Accepted Answer

ROI = Net operating income ÷ Average operating assets
0.20 = Net operating income ÷ $100,000
Net operating income = 0.20 × $100,000 = $20,000
Residual income = Net operating income − (Average operating assets × Minimum required rate of return)
= $20,000 − ($100,000 × 0.15) = $20,000 − $15,000 = $5,000

The Following Data Has Been Provided for a Company's Most