Reference: 12-07
The following selected data pertain to the belt division of Allen Corp. for last year: $$\begin{array} { | l | l | }
\hline \text { Sales } & \$ 500,000 \
\hline \text { Average operating assets } & \$ 200,000 \
\hline \text { Net operating income } & \$ 80,000 \
\hline \text { Turnover } & 2.5 \
\hline \text { Minimum required return } & 20 \% \
\hline
\end{array}$$
-How much is the residual income?
A)$80,000.
B)$100,000.
C)$40,000.
D)$420,000.

Question

Reference: 12-07
The following selected data pertain to the belt division of Allen Corp. for last year: $$\begin{array} { | l | l | } 
\hline \text { Sales } & \$ 500,000 \
\hline \text { Average operating assets } & \$ 200,000 \
\hline \text { Net operating income } & \$ 80,000 \
\hline \text { Turnover } & 2.5 \
\hline \text { Minimum required return } & 20 \% \
\hline
\end{array}$$
-How much is the residual income?
A)$80,000.
B)$100,000.
C)$40,000.
D)$420,000.

Quizplus · Accepted Answer

Residual income is calculated as Net Operating Income - (Average Operating Assets * Minimum Required Return). Here, it's $80,000 - ($200,000 * 20%) = $80,000 - $40,000 = $40,000.

Reference: 12-07 the Following Selected Data Pertain to the Belt

Reference: 12-07
the Following Selected Data Pertain to the Belt