Concept Introduction:
Residual Income: That income which is more than the normal income of that type of organization.
Requirement-1:
To Identify:
Determine the residual income.
Concept Introduction:
Return on investment: In this we divide the total return or profit with the investment into the assets of organization. It is the best way of calculating the % of return in the business.
Residual Income: That income which is more than the normal income of that type of organization.
Requirement-2:
To Identify:
Which division has highest residual income?
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Survey of Accounting (Accounting I)
- The performance of the manager of Division A is measured by residual income. Which of the following would increase the manager's performance measure? a. Increase in average operating assets. b. Decrease in average operating assets. c. Increase in minimum required return. d. Decrease in net operating income.arrow_forwarda. Compute the rate of return on investment for each division. b. Which division is the most profitable per dollar invested? Assume that management has established a 10% minimum acceptable rate of return for invested assets. c. Determine the residual income for each division. d. Which division has the most residual income?arrow_forwardThe vice president of operations of Moab Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year ending October 31, 20Y9, for each division are as follows: (P14-5) Touring Bike Division Trail Bike Division Sales $1,500,000 $5,00 Cost of goods sold Operating expenses Invested assets 900,000 4,000,000 495,000 968,000 750,000 3,600,000 Instructions 1. Prepare condensed divisional income statements for the year ended October 31, 20Y9, assuming that there were no service department charges. Touting Bike Division Trial Bike Divisionarrow_forward
- The following selected data pertain to the Argent Division for last year: Required: 1. How much is the residual income? 2. How much is the return on investment? (Rounded to four significant digits.)arrow_forwardUse the following information for Exercises 11-31 and 11-32: Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last years results: Washingtons actual cost of capital was 12%. Exercise 11-32 Residual Income Refer to the information for Washington Company above. In addition, Washington Companys top management has set a minimum acceptable rate of return equal to 8%. Required: 1. Calculate the residual income for the Adams Division. 2. Calculate the residual income for the Jefferson Division.arrow_forward3. If management desires a minimum acceptable return on investment of 10%, determine the residual income for each division.arrow_forward
- required: (a) Calculate the current ROI for Division M. (percent) (b) Calculate the current Residual for Division M. (c) What is the new ROI if Proposal 1 is selected? (with 2 decimal, percent) (d) What is the new Residual income if Proposal 1 is selected? (e) What is the new Residual income if Proposal 2 is selected?arrow_forwardRequired: 1. Compute the ROI for each division. 2. Assume that the company evaluates performance by use of residual income and that the minimum required return for any division is 16 degrees. Compute the residual income for each division.arrow_forwardResidual income is: A. The excess of operating income over the minimum operating income required B. The same as operating income C. The excess of the minimum operating income required over operating income on the income statement D. Operating income multiplied by the desired ROIarrow_forward
- Determining missing items in return and residual income computations Data are presented in the following table of returns on investment and residual incomes: Invested Assets Operating Income Return on Investment Minimum Return on Investment Minimum Acceptable Operating Income Residual Income $870,000 $200,100 (a) 13% (b) (c) $520,000 (d) (e) (f) $57,200 $26,000 $340,000 (g) 14% (h) $37,400 (i) $260,000 $49,400 (j) 11% (k) (l)arrow_forwardDetermining missing items in return and residual income computations Data are presented in the following table of returns on investment and residual incomes: Invested Assets Operating Income Return on Investment Minimum Return on Investment Minimum Acceptable Operating Income Residual Income $1,200,000 $198,000 (a) 12% (b) (c) $800,000 (d) (e) (f) $120,000 $40,000 $750,000 (g) 14% (h) $90,000 (i) $1,800,000 $441,000 (j) 15% (k) (l) Determine the missing items, identifying each item by the appropriate letter. Round your percentages to one decimal place. a. fill in the blank 1 % b. $fill in the blank 2 c. $fill in the blank 3 d. $fill in the blank 4 e. fill in the blank 5 % f. fill in the blank 6 % g. $fill in the blank 7 h. fill in the blank 8 % i. $fill in the blank 9 j. fill in the blank 10 % k. $fill in the blank 11 l. $fill in the…arrow_forwardDetermining missing items in return and residual income computations Data are presented in the following table of returns on investment and residual incomes: Invested Assets Operating Income Return on Investment Minimum Return on Investment Minimum Acceptable Operating Income Residual Income $1,200,000 $198,000 (a) 12% (b) (c) $800,000 (d) (e) (f) $120,000 $40,000 $750,000 (g) 14% (h) $90,000 (i) $1,800,000 $441,000 (j) 15% (k) (l) Determine the missing items, identifying each item by the appropriate letter. Round your percentages to one decimal place. a. % b. $ c. $ d. $ e. % f. % g. $ h. % i. $ j. % k. $ l. $arrow_forward
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