The following is divisional information for Kingfisher Enterprises: East DivisionWest DivisionOperating income$250,000$200,000Net sales2,225,0001,575,000Total assets at Jan. 11,500,000840,000Total assets at Dec .311,200,0001,000,000The target rate of return is 12% for the East Division and is 10% for the West Division.Compute residual income for each division.

Solution: East Division: Average assets = (1500000 + 1200000) / 2 = 1,350,000 Residual income = Operating income - target income = 250000 - (1350000*12%) = 250000 - 162000 = $88,000 West Division: Average assets = (840000 + 1000000) / 2 = 920,000 Residual income = Operating income - target income = 200000 - (920000*10%) = 200000 - 92000 = $108,000

Answered: The following is divisional information…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

The following is divisional information for Kingfisher Enterprises:

	East Division	West Division
Operating income	$250,000	$200,000
Net sales	2,225,000	1,575,000
Total assets at Jan. 1	1,500,000	840,000
Total assets at Dec .31	1,200,000	1,000,000

The target rate of return is 12% for the East Division and is 10% for the West Division.
Compute residual income for each division.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions