The following information is available for Kiss Company:
$$\begin{array} { l c }
\text { Sales } & \$ 100,000 \
\text { Operating expenses } & \$ 94,000 \
\text { Operating assets } & \$ 40,000 \
\text { Stockholder's equity } & \$ 25,000 \
\text { Cost of capital } &10\%
\end{array}$$
What is Kiss Company's residual income?
A) $2,000.
B) $2,500.
C) $3,500.
D) $4,000.

Question

The following information is available for Kiss Company:
$$\begin{array} { l c } 
\text { Sales } & \$ 100,000 \
\text { Operating expenses } & \$ 94,000 \
\text { Operating assets } & \$ 40,000 \
\text { Stockholder's equity } & \$ 25,000 \
\text { Cost of capital } &10\%
\end{array}$$
What is Kiss Company's residual income?
A) $2,000.
B) $2,500.
C) $3,500.
D) $4,000.

Quizplus · Accepted Answer

Residual income is calculated as operating income minus the product of operating assets and cost of capital. Operating income is sales minus operating expenses, which is $6,000. The cost of capital charge is $40,000 * 10% = $4,000. Thus, residual income is $6,000 - $4,000 = $2,000.

The Following Information Is Available for Kiss Company What Is Kiss Company's Residual Income? A) $2,000

The Following Information Is Available for Kiss Company What Is Kiss Company's Residual Income?
A) $2,000