Question

Mason Corporation had $1,039,000 in invested assets, sales of $1,258,000, income from operations amounting to $242,000, and a desired minimum rate of return of 12%. The residual income for Mason Corporation is ?

a) $117,320

b) ($5,700)

c) $0

d) $164,248

Answer 1

Residual income = Net Income - (Minimum required rate of return * Average Operating Assets)

Average Operating Assets= (Opening Operating Assets + Closing Operating Assets ) / 2

Here information regarding Opening Operating Assets and Closing Operating Assets is not given so investment in assets as provided in the question will be considered as average operating assets.

Residual income = $ 242,000 - ( 12% * 1,039,000)

= $ 117,320

Residual income for Mason Corporation is $ 117,320