Question

The following information is provided for each division. Investment Center Net Income Average Assets Cameras and camcorders $ 6,800,000 $ 20,600,000 Phones and communications 3,010,000 21,500,000 Computers and accessories 1,100,000 16,600,000 Assume a target income of 14% of average invested assets. Required: Compute residual income for each division. (Enter losses with a minus sign.)

Answer 1

Answer and Explanation:

The calculation of the residual income for each division is given below:

Target Income    Cameras & Camcorders Phones & Comm Computers & Acc.

Average Assets $20,600,000         $21,500,000               $16,600,000

Target Return                14%                       14%                              14%

Target Income        $2,884,000           $3,010,000                  $2,324,000

Residual Income    Cameras & Camcorders Phones & Comm Computers & Acc.

Net Income              $6,800,000               $3,010,000           $1,100,000

Less: Target Income  $2,884,000           $3,010,000            $2,324,000

Residual Income       $3,916,000              $0                         -$1,224,000