Howard Company provided the following selected information about its consumer products division for the current year: Based on this information, the division's investment amount was:
A) $250,000.
B) $1,000,000.
C) $1,500,000.
D) $1,250,000.

Question

Howard Company provided the following selected information about its consumer products division for the current year:  Based on this information, the division's investment amount was:
A) $250,000. 
B) $1,000,000. 
C) $1,500,000. 
D) $1,250,000.

Quizplus · Accepted Answer

Residual income = Operating income − (Operating assets × Desired ROI)
$30,000 = $150,000 − (Operating assets × 12%)
Operating assets × 12% = $150,000 − $30,000
Operating assets = $120, 000 ÷ 12% = $1,000,000

Howard Company Provided the Following Selected Information About Its Consumer