Question

Last year the company had net operating income of $450,000 on sales of $1,500,000. Lost Peak’s average operating assets for the year were $1,700,000 and its minimum required rate of return was 10%. Required:Compute the company’s residual income for the year.

Answer 1

Answer:

$280,000

Explanation:

Computation for the company’s residual income for the year

Using this formula

Residual Income=Operating income- (Average operating assets×Rate of return)

Let plug in the formula

Residual Income = $450,000 – ($1,700,000 x 10%)

Residual Income=$450,000-$170,000

Residual income=$280,000

Therefore te company’s residual income for the year will be $280,000