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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Residual income
Based on the data in Exercise 14-10, assume that management has established a 10% minimum acceptable rate of return for invested assets. a. Determine the residual income for each division. b. Which division has the most residual income?

To determine

Concept Introduction:

Return on investment: In this we divide the total return or profit with the investment into the assets of organization. It is the best way of calculating the % of return in the business.

Residual Income: That income which is more than the normal income of that type of organization.

Requirement-1:

To Identify:

Determine the residual income.

Explanation

Following table help us to identify the residual income of the divisions:

    DivisionsRetailCommercialInternet
    Investment40000000750000001800000
    Profit800000012750000270000
To determine

Concept Introduction:

Return on investment: In this we divide the total return or profit with the investment into the assets of organization. It is the best way of calculating the % of return in the business.

Residual Income: That income which is more than the normal income of that type of organization.

Requirement-2:

To Identify:

Which division has highest residual income?

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