The following selected data pertain to the belt division of Allen Corp. for last year:

$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 500,000 \
\hline \text { Average Operating Assets } & \$ 200,000 \
\hline \text { Operating Income } & \$ 80,000 \
\hline \text { Turnover } & 2.5 \
\hline \text { Minimum Required Return } & 20 \% \
\hline
\end{array}$

-What was the residual income?
A) $40,000.
B) $80,000.
C) $100,000.
D) $420,000.

Question

The following selected data pertain to the belt division of Allen Corp. for last year:

$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 500,000 \
\hline \text { Average Operating Assets } & \$ 200,000 \
\hline \text { Operating Income } & \$ 80,000 \
\hline \text { Turnover } & 2.5 \
\hline \text { Minimum Required Return } & 20 \% \
\hline
\end{array}$

-What was the residual income?
A) $40,000.
B) $80,000.
C) $100,000.
D) $420,000.

Quizplus · Accepted Answer

Residual income is calculated as Operating Income - (Average Operating Assets * Minimum Required Return). Here, it's $80,000 - ($200,000 * 20%) = $80,000 - $40,000 = $40,000.

The Following Selected Data Pertain to the Belt Division of Allen