When residual income is calculated, an amount is subtracted to cover the profit that the company believes should be earned by the assets invested in the subunit.

Question

Quizplus · Accepted Answer

This is true, as residual income is calculated by subtracting a required rate of return or a minimum acceptable rate of return from the actual income earned by the subunit. This amount is considered to be the profit that should be earned by the assets invested in the subunit.

When Residual Income Is Calculated, an Amount Is Subtracted to Cover