East Mullett Manufacturing earned operating income last year as shown in the following income statement: Sales $531,250 Cost of goods sold 280,000 Gross margin $251,250 Selling and administrative expense 181,700 Operating income $69,550 Less: Income taxes (@ 40%) 27,820 Net income $41,730 At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. East Mullett requires a minimum rate of return of 10%. Required: For East Mullett, calculate: 1. Average operating assets $fill in the blank 1 2. Residual income $fill in the blank 2
East Mullett Manufacturing earned operating income last year as shown in the following income statement: Sales $531,250 Cost of goods sold 280,000 Gross margin $251,250 Selling and administrative expense 181,700 Operating income $69,550 Less: Income taxes (@ 40%) 27,820 Net income $41,730 At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. East Mullett requires a minimum rate of return of 10%. Required: For East Mullett, calculate: 1. Average operating assets $fill in the blank 1 2. Residual income $fill in the blank 2
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calculating Residual Income
East Mullett Manufacturing earned operating income last year as shown in the following income statement:
| Sales | $531,250 |
| Cost of goods sold | 280,000 |
| Gross margin | $251,250 |
| Selling and administrative expense | 181,700 |
| Operating income | $69,550 |
| Less: Income taxes (@ 40%) | 27,820 |
| Net income | $41,730 |
At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. East Mullett requires a minimum
Required:
For East Mullett, calculate:
| 1. Average operating assets | $fill in the blank 1 |
| 2. Residual income | $fill in the blank 2 |
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