Richard's Division of Richard and Sons has the following data related to a particular period:
Calculate the amount of residual income for the period.
A) $70 000
B) $7000
C) $77 000
D) $680 000

Question

Richard's Division of Richard and Sons has the following data related to a particular period: 
Calculate the amount of residual income for the period.
A) $70 000 
B) $7000 
C) $77 000 
D) $680 000

Quizplus · Accepted Answer

Residual income can be calculated as follows: 
Residual income = Net Operating Income - (Minimum Required Return x Total Assets) 
From the given data: 
Net Operating Income = $140,000 
Minimum Required Return = 10% 
Total Assets = $1,300,000 
Therefore, 
Residual income = $140,000 - (0.10 x $1,300,000) = $70,000 
Hence, the correct answer is option B.

Richard's Division of Richard and Sons Has the Following Data