The income from operations and the amount of invested assets in each division of Shiner Industries are as follows: Income from Operations Invested Assets Retail Division $127,600 $580,000 Commercial Division 80,000 320,000 Internet Division 78,200 460,000 Assume that management has established an 12% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Income from operations $127,600 $80,000 $78,200 Minimum amount of income from operations Residual income $ $ $ b. Which division has the most residual income?
The income from operations and the amount of invested assets in each division of Shiner Industries are as follows: Income from Operations Invested Assets Retail Division $127,600 $580,000 Commercial Division 80,000 320,000 Internet Division 78,200 460,000 Assume that management has established an 12% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Income from operations $127,600 $80,000 $78,200 Minimum amount of income from operations Residual income $ $ $ b. Which division has the most residual income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Residual Income
The income from operations and the amount of invested assets in each division of Shiner Industries are as follows:
| Income from Operations |
Invested Assets |
|
| Retail Division | $127,600 | $580,000 |
| Commercial Division | 80,000 | 320,000 |
| Internet Division | 78,200 | 460,000 |
Assume that management has established an 12% minimum acceptable
a. Determine the residual income for each division.
| Retail Division | Commercial Division | Internet Division | |
| Income from operations | $127,600 | $80,000 | $78,200 |
| Minimum amount of income from operations | |||
| Residual income | $ | $ | $ |
b. Which division has the most residual income?
Expert Solution
Step 1 Formulas used :
Formulas,
- Minimum acceptable income = Invested assets * 12%
- Residual value = Income from operations - minimum acceptable income.
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