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Determining missing items in return and residual income computations Data for Uberto Company are presented in the following table of returns on investment and residual incomes: Invested Assets Income from Operations Return on Investment Minimum Return Minimum Acceptable Income from Operations Residual Income $925,000 $185,000 (a) 15% (b) (c) $775,000 (d) (e) (f) $93,000 $23,250 $450,000 (g) 18% (h) $58,500 (i) $610,000 $97,600 (j) 12% (k) (1) Determine the missing items, identifying each item by the appropriate letter.

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Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 24, Problem 24.15EX
Textbook Problem

Determining missing items in return and residual income computations

 Data for Uberto Company are presented in the following table of returns on investment and residual incomes:

Invested Assets Income from Operations Return on Investment Minimum Return Minimum Acceptable Income from Operations Residual Income
$925,000 $185,000 (a) 15% (b) (c)
$775,000 (d) (e) (f) $93,000 $23,250
$450,000 (g) 18% (h) $58,500 (i)
$610,000 $97,600 (j) 12% (k) (1)

 Determine the missing items, identifying each item by the appropriate letter.

Expert Solution
To determine

Return on investment (ROI): This financial ratio evaluates how efficiently the assets are used in earning income from operations. So, ROI is a tool used to measure and compare the performance of a units or divisions or a companies.

Formula of ROI:

Return on investment = Income from operationsInvested assets

Residual income: The remaining income from operations after deducting the desired acceptable income is referred to as residual income.

Formula of residual income:

Income from operationsXXX
Less minimum acceptable income from operations as a percent of invested assetsXXX
Residual incomeXXX

Table (1)

To compute: The missing items

Explanation of Solution

(a)

Determine ROI.

Return on investment = Income from operationsInvested assets$185,000$925,000= 0.20 or 20%

(b)

Determine minimum acceptable income from operations.

Minimum acceptable income from operations as a percent of invested assets} = {Invested assets × Minimum acceptable return on assets}= $925,000×15%= $138,750

(c)

Determine residual income.

ParticularsAmount ($)
Income from operations$185,000
Less minimum acceptable income from operations as a percent of invested assets138,750
Residual income$46,250

Table (2)

(d)

Determine income from operations.

ParticularsAmount ($)
Minimum acceptable income from operations$93,000
Add: Residual income$23,250
Residual income$116,250

Table (3)

(e)

Determine ROI.

Return on investment = Income from operationsInvested assets$116,250$775,000= 0.15 or 15%

Note: Refer to missing amount (d) for computation of income from operations.

(f)

Determine minimum acceptable return on assets.

Minimum acceptable income from operations as a percent of invested assets} = {Invested assets × Minimum acceptable return on assets}$93,000 = $775,000×Minimum acceptable returnMinimum acceptable return$93,000$775,000= 0.12 or 12%

(g)

Determine income from operations.

Return on investment = Income from operationsInvested assets0

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Chapter 24 Solutions

Accounting
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