Answer:
Income from operations…………………………………………………………………… $420,000
Less: Minimum acceptable income from operations as a
percent of assets ($910,000 × 8%)……………………………………………………… 72,800
Residual income…………………………………………………………………………… $347,200
The Consumer Division of Hernandez Company has income from operations of $90,000 and assets of $450,000. The minimum acceptable rate of return on assets is 10%. What is the residual income for the division?
Answer:
Income from operations…………………………………………………………………… $90,000
Less: Minimum acceptable income from operations as a
percent of assets ($450,000 × 10%)…………………………………………………… 45,000
Residual income…………………………………………………………………………… $45,000
