The following information is from Bluff Run Golf Courses. The company runs two courses and the July income statement for each course is shown below. What is the residual income (RI) for the Blue course? Round to 2 decimal places Blue courseBlack CourseTotal Revenue$73,500$95,000Total expenses$62,200$79,100Total assets (investment base)$94,200106,000Cost of capital11%13%Group of answer choices$10,362$938$13,780$2,120

Bluff Run Golf courses runs two courses. 1. Blue course 2. Black course Blue Course Black Course Total Revenue $73,500 $95,000 Total expenses $62,200 $79,100 Total assets (investment base) $94,200 106,000 Cost of capital 11% 13% Residual income for Blue course = ?Residual income is an income that the company receives income even after the completion of income producing works. These Residual income are such as follows : Rental incomes, Dividend incomes, Interest incomes, Royalties etc., Residual income of Blue course : Residual income is determined with the formula as follows : Residual income = Income from operations - (Operating assets x Minimum required return) Income from operations = Total Revenues - Total Expenses = $73500 - $62200 = $11300 Operating assets = Investment base cost Investment base = $94200 Minimum required rate of return = Cost of capital Cost of capital = 11%Residual income = $11300 - ($94200 x 11%) = $11300 - 10362 = $938 Hence, Residual income of Blue course = $938. Therefore, Option 2 = $938 is the correct answer. Here, the Options of $10362, 13780 and 2120 are incorrect with the formula of residual income.

Answered: The following information is from Bluff…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following information is from Bluff Run Golf Courses. The company runs two courses and the July income statement for each course is shown below. What is the residual income (RI) for the Blue course? Round to 2 decimal places

	Blue course	Black Course
Total Revenue	$73,500	$95,000
Total expenses	$62,200	$79,100
Total assets (investment base)	$94,200	106,000
Cost of capital	11%	13%

Group of answer choices

$10,362

$938

$13,780

$2,120

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