BFF Corporation uses an imputed interest rate of 13% in the calculation of residual income.Division X,which is part of BFF,had invested capital of $1,200,000 and an ROI of 16%.On the basis of this information,X's residual income was:
A)$24,960.
B)$36,000.
C)$156,000.
D)$192,000.
E)some other amount.

Question

Quizplus · Accepted Answer

Residual income is calculated as the operating income minus the imputed interest on invested capital. The imputed interest is 13% of $1,200,000, which is $156,000. The operating income is 16% of $1,200,000, which is $192,000. Therefore, the residual income is $192,000 - $156,000 = $36,000.

BFF Corporation Uses an Imputed Interest Rate of 13% in the Calculation