Use the following information to compute residual income:
A)$12,000.
B)$22,500.
C)$30,000.
D)$48,000.

Question

Use the following information to compute residual income: 
A)$12,000. 
B)$22,500. 
C)$30,000. 
D)$48,000.

Quizplus · Accepted Answer

To compute residual income, we need to subtract the required return on investment from the actual return on investment. From the given information, we know that the required return on investment is 12%, and the actual return on investment is $36,000.

So, the residual income can be calculated as follows:

Residual Income = Actual Return on Investment - Required Return on Investment x Total Assets 
Residual Income = $36,000 - 12% x $300,000 
Residual Income = $36,000 - $36,000 
Residual Income = $0

Since the residual income is zero, it means that the actual return is exactly meeting the required return. Therefore, there is no excess income to be considered as residual income. So, the answer is A) $12,000.

Use the Following Information to Compute Residual Income