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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

Divisional performance analysis and evaluation

The vice president of operations of Moab Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year ending October 31, 20Y9, for each division are as follows

Instructions

If management desires a minimum acceptable rate of return of 10%, determine the residual income for each division.

To determine

Concept Introduction:

Divisional income statement shows the Profit or Losses which the operating division generate during the accounting year after deducting cost of goods sold and operating expenses from the net revenue.

To Calculate:

The residual Income for each division

Explanation

The residual Income for each division is calculated as follows:

    Touring Bike Division Trail Bike Division
    Average Total Assets (A) $ 495,000 $ 968,000

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