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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Residual income

 The Commercial Division of Herring Company has income from operations of $420,000 and assets of $910,000. The minimum acceptable return on assets is 8%. What is the residual income for the division?

To determine

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 determine: Residual income of C Division

Explanation

Determine residual income of C Division.

Step 1: Compute minimum acceptable income from operations as a percent of invested assets for C Division.

Minimum acceptable income from operations as a percent of invested assets} = {Invested assets × Minimum acceptable return on assets

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