The income statement for Forklift Electrical Ltd for two years is attached as a pic.Required: Assuming an 8% cost of capital, calculate the residual income for each year. Would the management of Forklift Electrical Ltd have been more likely to accept the investment opportunity if the residual income had been used as a performance measure instead of ROI? Explain your answer Forklift Electrical LtdIncome Statement ComparisonCurrent yearPrior Year(amounts in thousands)Sales$ 33,750$ 24,750Cost of goods sold21,93816,830Gross profit$ 11,812$ 7,920Wages$ 8,775$ 6,188Utilities675250Repairs169325Selling506200Total expenses$ 10,125$ 6,963Total assets (investment base) $ 4,500$ 1,500

Solution 1: Net income - Current year = $11,812 - $10,125 = $1,687 Residual income - Current year =…

Answered: The income statement for Forklift…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter5: The Income Statement And The Statement Of Cash Flows

Section: Chapter Questions

Problem 2MC: The following information is available for Cooke Company for the current year: The gross margin is...

See similar textbooks

Related questions

Question

The income statement for Forklift Electrical Ltd for two years is attached as a pic.

Required:

Assuming an 8% cost of capital, calculate the residual income for each year.
Would the management of Forklift Electrical Ltd have been more likely to accept the investment opportunity if the residual income had been used as a performance measure instead of ROI? Explain your answer

Forklift Electrical Ltd
Income Statement Comparison
Current year
Prior Year
(amounts in thousands)
Sales
$ 33,750
$ 24,750
Cost of goods sold
21,938
16,830
Gross profit
$ 11,812
$ 7,920
Wages
$ 8,775
$ 6,188
Utilities
675
250
Repairs
169
325
Selling
506
200
Total expenses
$ 10,125
$ 6,963
Total assets (investment base) $ 4,500
$ 1,500

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions