The Northern Division of the Smith Company had average total operating assets of $150,000 last year.Its minimum required rate of return was 12%.The division reported operating income of $20,000.What was the residual income for the Northern Division last year?
A) $2,000.
B) $5,000.
C) $18,000.
D) $20,000.

Question

Quizplus · Accepted Answer

Residual income is calculated as the operating income minus the product of the minimum required rate of return and the average total operating assets. Here, it's $20,000 - (12% of $150,000) = $20,000 - $18,000 = $2,000.

The Northern Division of the Smith Company Had Average Total