Determine the March 2014 residual income for an investment center with the following information:
A)$5,180,000
B)$3,094,000
C)$2,086,000
D)$8,806,000

Question

Determine the March 2014 residual income for an investment center with the following information: 
A)$5,180,000 
B)$3,094,000 
C)$2,086,000 
D)$8,806,000

Quizplus · Accepted Answer

To calculate the residual income, we need to subtract the required return on investment from the actual income generated. The required ROI is given as 15% of the average total assets, which is calculated as (Beginning Total Assets + Ending Total Assets)/2.
Required ROI = 15% x [(1,220,550,000 + 1,179,450,000)/2] = $180,000
Actual income generated is given as $2,266,000
Residual income = Actual income - Required ROI = $2,086,000 (Option C)

Determine the March 2014 Residual Income for an Investment Center