$\begin{array}{l}
\text { The following information is available on Company B: }\
\begin{array} { | l | r | }
\hline \text { Sales } & \$ 950,000 \
\hline \text { Operating Income } & \$ 56,000 \
\hline \text { Shareholders' Equity } & \$ 100,000 \
\hline \text { Average Operating Assets } & \$ 190,000 \
\hline \text { Minimum Required Rate of Return } & 20 \% \
\hline
\end{array}
\end{array}$
-What is Company B's residual income?
A) $9,000.
B) $18,000.
C) $24,000.
D) $45,000.

Question

$\begin{array}{l}
\text { The following information is available on Company B: }\
\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 950,000 \
\hline \text { Operating Income } & \$ 56,000 \
\hline \text { Shareholders' Equity } & \$ 100,000 \
\hline \text { Average Operating Assets } & \$ 190,000 \
\hline \text { Minimum Required Rate of Return } & 20 \% \
\hline
\end{array}
\end{array}$
-What is Company B's residual income?
A) $9,000.
B) $18,000.
C) $24,000.
D) $45,000.

Quizplus · Accepted Answer

Residual income is calculated as Operating Income - (Average Operating Assets * Minimum Required Rate of Return). Here, it's $56,000 - ($190,000 * 20%) = $56,000 - $38,000 = $18,000.

-What Is Company B's Residual Income? A) $9,000

-What Is Company B's Residual Income?
A) $9,000