The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year’s net operating income at Northern was $20,000, then the residual income for Northern last year was:
a. $20,000
b. $l8,000
c. $5,000
Selected: d. $2,000 This answer is correct.
Correct! Residual income is net operating income less minimum required rate of return times average operating assets so $20,000 less 12 percent of $150,000 is $2,000.