Question

Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,280,000; sales of $4,705,000; cost of goods sold of $2,730,000; and operating expenses of $1,552,000. Assume a target income of 8% of average invested assets. Compute residual income for the division: $158,000. $38,100. $80,600. $33,840. $90,600.

Answer 1

Answer:

Residual Income                             $80,600

Explanation:

Residual income = Operating income - Equity charge.

First lets calculate the operating income,

Sales                                               4,705,000

Less Cost of goods sold                (2,730,000)

Gross profit                                     1,975,000

Less operating expense                (1,552,000)

Operating income                            423,000

Equity charge (4,280,000*0.08)     (342,400)

Residual Income                               $80,600

Hope that helps.