Reference: 22_08
$\begin{array}{lrr}
\text { Quarry Co.}&\text { Smith}&\text { Barney}\
\text { Revenue } & \$ 412,000 & \$ 450,000 \
\text { Costs } & 380,000 & 411,000 \
\text { Average assets } & 400,000 & 600,000
\end{array}$

-Based on the Quarry Company information,what is residual income for Smith and Barney?
A) Smith: $4,000; Barney: $(3,000)
B) Smith: $(3,000); Barney: $4,000
C) Smith: $28,000; Barney: $42,000
D) Smith: $8% ; Barney: 6.5%
E) Smith: $0; Barney: $0

Question

Reference: 22_08
 $\begin{array}{lrr}
\text { Quarry Co.}&\text { Smith}&\text { Barney}\
\text { Revenue } & \$ 412,000 & \$ 450,000 \
\text { Costs } & 380,000 & 411,000 \
\text { Average assets } & 400,000 & 600,000
\end{array}$

-Based on the Quarry Company information,what is residual income for Smith and Barney?
A) Smith: $4,000; Barney: $(3,000)
B) Smith: $(3,000); Barney: $4,000
C) Smith: $28,000; Barney: $42,000
D) Smith: $8% ; Barney: 6.5%
E) Smith: $0; Barney: $0

Quizplus · Accepted Answer

Residual income = Net income - (Required rate of return * Average assets)Required rate of return = 10% (assumed)For Smith:Residual income = $32,000 - ($400,000 * 10%) = $4,000For Barney:Residual income = $39,000 - ($600,000 * 10%) = $(3,000)

Reference: 22_08 -Based on the Quarry Company Information,what Is Residual Income for