Question

The Northern Division of the Smith Company had average total operating assets of $154,638 last year. Its minimum required rate of return was 11%. The division reported operating income of $39,666. Northern typically has an ROI of 13%.

What was the residual income for the Northern Division last year? (Round to the nearest dollar)

Answer 1

Average total operating assets = $154,638

Operating income = $39,666

Required rate of return = 11%

Residual income = Operating income - ( Average total operating assets x Required rate of return)

= 39,666 - ( 154,638 x 11%)

= 39,666-17,010

= $22,656

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