# 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. BuyFind ### 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 operations XXX Less minimum acceptable income from operations as a percent of invested assets XXX Residual income XXX

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.

 Particulars Amount ($) Income from operations$185,000 Less minimum acceptable income from operations as a percent of invested assets 138,750 Residual income $46,250 Table (2) (d) Determine income from operations.  Particulars Amount ($) 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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