$\begin{array}{l}
\text { The following information is available on Company A: }\
\begin{array} { | l | r | }
\hline \text { Sales } & \$ 900,000 \
\hline \text { Operating Income } & \$ 36,000 \
\hline \text { Shareholders' Equity } & \$ 100,000 \
\hline \text { Average Operating Assets } & \$ 180,000 \
\hline \text { Minimum Required Rate of Return } & 15 \% \
\hline
\end{array}
\end{array}$
-What is Company A's residual income?
A) $9,000.
B) $21,000.
C) $24,000.
D) $45,000.

Question

$\begin{array}{l}
\text { The following information is available on Company A: }\
\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 900,000 \
\hline \text { Operating Income } & \$ 36,000 \
\hline \text { Shareholders' Equity } & \$ 100,000 \
\hline \text { Average Operating Assets } & \$ 180,000 \
\hline \text { Minimum Required Rate of Return } & 15 \% \
\hline
\end{array}
\end{array}$
-What is Company A's residual income?
A) $9,000.
B) $21,000.
C) $24,000.
D) $45,000.

Quizplus · Accepted Answer

Residual income is calculated as Operating Income - (Minimum Required Rate of Return * Average Operating Assets). Here, it is $36,000 - (0.15 * $180,000) = $36,000 - $27,000 = $9,000.

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

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