Carter Company reported the following financial numbers for one of its divisions for the year;average total assets of $4,100,000;sales of $4,525,000;cost of goods sold of $2,550,000;and operating expenses of $1,372,000.Assume a target income of 10% of average invested assets.Compute residual income for the division:
A)$203,000.
B)$193,000.
C)$150,500.
D)$60,300.
E)$197,500.

Question

Quizplus · Accepted Answer

Residual income = Operating income - (Target rate of return x Average invested assets)
Target income = 10% of $4,100,000 = $410,000
Operating income = Sales - Cost of goods sold - Operating expenses = $4,525,000 - $2,550,000 - $1,372,000 = $603,000
Residual income = $603,000 - ($410,000) = $193,000. Therefore, the correct answer is choice B.

Carter Company Reported the Following Financial Numbers for One of Its