Use the following information for Brief Exercises 11-19 through 11-21:
Barnard Manufacturing earned operating income last year as shown in the following income statement:
At the beginning of the year, the value of operating assets was $2,700,000. At the end of the year, the value of operating assets was $2,300,000.
Brief Exercise 11-20 Calculating Residual Income
Refer to the information for Barnard Manufacturing on the previous page. Barnard requires a minimum rate of return of 15%.
Required:
Calculate (1) average operating assets and (2) residual income.
(1)
Compute average operating assets.
Average Operating Assets:
Average operating assets can be determined by adding the beginning assets and ending assets and dividing the result by 2.
Use the following formula to calculate average operating assets:
Substitute $2,700,000 for beginning assets and $2,300,000 for ending assets in the above formula
(2)
Compute residual income.
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