Fundamental Accounting Principles
Fundamental Accounting Principles
24th Edition
ISBN: 9781259916960
Author: Wild, John J., Shaw, Ken W.
Publisher: Mcgraw-hill Education,
Question
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Chapter 24, Problem 3AA

Requirement-1

To determine

To Calculate:

The Residual income for Samsung for the year 2017

Requirement-1

Expert Solution
Check Mark

Answer to Problem 3AA

The Residual income for Samsung for the year 2017 shall be19,809,453 millions of Korean won.

Explanation of Solution

The Residual income for Samsung for the year 2017 is calculated as follows:

    Samsung
    In millions of Korean wonYear 2017
    Beginning Total Assets (A)
    		262,174,324
    Ending Total Assets (B)
    		301,752,090
    Average Total Assets (C) = (A+B)/2281,963,207
    Target Rate of Return (B)
    		12%
    Target Income (C) =A*B =33,835,585
    Operating Income (D)
    		53,645,038
    Residual Income (RI) = D-C =19,809,453

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:

  Residual Income = Operating Income – (Average assets ×Required rate or Return)

Return on total Assets/ Investment:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  Return on assets = Net incomeAverage Total Assets 

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  Average total Assets = (Beginning total assets + Ending total assets)2 

Requirement-2

To determine

To Calculate:

The Return on investment for Samsung for the year 2017

Requirement-2

Expert Solution
Check Mark

Answer to Problem 3AA

The Return on investment for Samsung for the year 2017 is 19.03%

Explanation of Solution

The Return on investment for Samsung for the year 2017 is calculated as follows:

    Samsung
    In millions of Korean wonYear 2017
    Beginning Total Assets (A)
    		262,174,324
    Ending Total Assets (B)
    		301,752,090
    Average Total Assets (C) = (A+B)/2281,963,207
    Operating Income (D)
    		53,645,038
    Return on Investment (ROI) = D/C =19.03%

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:

  Residual Income = Operating Income – (Average assets ×Required rate or Return)

Return on total Assets/ Investment:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  Return on assets = Net incomeAverage Total Assets 

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  Average total Assets = (Beginning total assets + Ending total assets)2 

Requirement-3

To determine

To Calculate:

The Return on investment for Apple for the year 2017

Requirement-3

Expert Solution
Check Mark

Answer to Problem 3AA

The Return on investment for Apple for the year 2017 is 17.60%

Explanation of Solution

The Return on investment for Apple for the year 2017 is calculated as follows:

    Apple
    $ MillionsYear 2017
    Beginning Total Assets (A)
    		$ 321,686
    Ending Total Assets (B)
    		$ 375,319
    Average Total Assets (C) = (A+B)/2$ 348,503
    Operating Income (D)
    		$ 61,344
    Return on Investment (ROI) = D/C =17.60%

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:

  Residual Income = Operating Income – (Average assets ×Required rate or Return)

Return on total Assets/ Investment:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  Return on assets = Net incomeAverage Total Assets 

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  Average total Assets = (Beginning total assets + Ending total assets)2 

Requirement-4

To determine

To Indicate:

The Company which has higher Return on investment for the year 2017

Requirement-4

Expert Solution
Check Mark

Answer to Problem 3AA

Samsung Company has the higher Return on investment for the year 2017

Explanation of Solution

The Return on investment for Samsung for the year 2017 is 19.03%

The Return on investment for Apple for the year 2017 is 17.60%

Hence, Samsung Company has the higher Return on investment for the year 2017

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Chapter 24 Solutions

Fundamental Accounting Principles

Ch. 24 - Prob. 1DQCh. 24 - Prob. 2DQCh. 24 - Prob. 3DQCh. 24 - Prob. 4DQCh. 24 - Prob. 5DQCh. 24 - Prob. 6DQCh. 24 - Prob. 7DQCh. 24 - Prob. 8DQCh. 24 - Prob. 9DQCh. 24 - Prob. 10DQ
Ch. 24 - Prob. 11DQCh. 24 - Prob. 12DQCh. 24 - Prob. 13DQCh. 24 - Prob. 14DQCh. 24 - Prob. 15DQCh. 24 - Prob. 16DQCh. 24 - Prob. 17DQCh. 24 - Prob. 18DQCh. 24 - Prob. 1QSCh. 24 - QS 24-2 Basis for cost allocation C1 In each...Ch. 24 - QS 244 Responsibility accounting report...Ch. 24 - QS 24-5 Allocating costs to departments...Ch. 24 - QS 24-6 Allocating costs to departments P2...Ch. 24 - QS 24-7 Allocating costs to departments P2...Ch. 24 - Prob. 7QSCh. 24 - QS 24-9 Departmental contribution to overhead...Ch. 24 - QS 24-10 Computing return on investment A1...Ch. 24 - QS 24-11 Computing residual income A1 Refer to...Ch. 24 - QS 24-12 Performance measures A1 A2 Fill in...Ch. 24 - QS 24-13 Computing profit margin and investment...Ch. 24 - Prob. 13QSCh. 24 - Prob. 14QSCh. 24 - Prob. 15QSCh. 24 - Prob. 16QSCh. 24 - Prob. 17QSCh. 24 - Prob. 18QSCh. 24 - Prob. 19QSCh. 24 - Prob. 1ECh. 24 - Prob. 2ECh. 24 - Prob. 3ECh. 24 - Prob. 4ECh. 24 - Prob. 5ECh. 24 - Exercise 24-6 Departmental expense allocation...Ch. 24 - Prob. 7ECh. 24 - Prob. 8ECh. 24 - Prob. 9ECh. 24 - Prob. 10ECh. 24 - Prob. 11ECh. 24 - Prob. 12ECh. 24 - Prob. 13ECh. 24 - Prob. 14ECh. 24 - Prob. 15ECh. 24 - Prob. 16ECh. 24 - Prob. 17ECh. 24 - Prob. 18ECh. 24 - Prob. 19ECh. 24 - Prob. 20ECh. 24 - Prob. 21ECh. 24 - Prob. 22ECh. 24 - Prob. 23ECh. 24 - Prob. 1APSACh. 24 - Prob. 2APSACh. 24 - Prob. 3APSACh. 24 - Prob. 4APSACh. 24 - Prob. 5APSACh. 24 - Prob. 1BPSBCh. 24 - Prob. 2BPSBCh. 24 - Prob. 3BPSBCh. 24 - Prob. 4BPSBCh. 24 - Prob. 5BPSBCh. 24 - Prob. 24SPCh. 24 - Prob. 1AACh. 24 - Prob. 2AACh. 24 - Prob. 3AACh. 24 - Prob. 1BTNCh. 24 - Prob. 2BTNCh. 24 - Prob. 3BTNCh. 24 - Prob. 4BTNCh. 24 - Prob. 5BTNCh. 24 - Prob. 6BTN
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