Chapter 12, Problem 12.5Q

To determine

Concept introduction:

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

  $\text{Residual Income = Operating Income – }\left(\text{Average assets ×Required rate or Return}\right)$

To indicate: the meaning of residual income.