East Mullett Manufacturing earned operating income last year as shown in the following income statement: Sales $3,750,000 Cost of goods sold 2,250,000 Gross margin $1,500,000 Selling and administrative expense 1,200,000 Operating income $ 300,000 Less: Income taxes (@ 40%) 120,000 Net income $ 180,000 At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000. East Mullett requires a minimum rate of return of 5%. What is the residual income?
East Mullett Manufacturing earned operating income last year as shown in the following income statement: Sales $3,750,000 Cost of goods sold 2,250,000 Gross margin $1,500,000 Selling and administrative expense 1,200,000 Operating income $ 300,000 Less: Income taxes (@ 40%) 120,000 Net income $ 180,000 At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000. East Mullett requires a minimum rate of return of 5%. What is the residual income?
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 | $3,750,000 |
| Cost of goods sold | 2,250,000 |
| Gross margin | $1,500,000 |
| Selling and administrative expense | 1,200,000 |
| Operating income | $ 300,000 |
| Less: Income taxes (@ 40%) | 120,000 |
| Net income | $ 180,000 |
At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000.
East Mullett requires a minimum
What is the residual income?
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