Question

In fiscal year 2022, Bob's Sporting Goods had net operating income of $50,000. Sales were $350,000. Average operating assets were $400,000. The company's required rate of return is 10%.

What is the residual income in 2022 for Bob's Sporting Goods?

Group of answer choices
O $10,000
O $50,000
O $15,000

Answer 1

The residual income for Bob's Sporting Goods in fiscal year 2022 is $10,000, calculated by subtracting the required return on assets ($40,000) from the net operating income ($50,000). Option number a is correct.

Step-by-step explanation:

To calculate residual income for Bob's Sporting Goods in fiscal year 2022, we need to subtract the required return on operating assets from the net operating income. The formula for residual income is:

Residual Income = Net Operating Income - (Average Operating Assets × Required Rate of Return)

Given the numbers:

• Net Operating Income = $50,000
• Average Operating Assets = $400,000
• Required Rate of Return = 10%

We calculate the required return on assets as:

Average Operating Assets × Required Rate of Return = $400,000 × 0.10 = $40,000

Now, subtract the required return from the net operating income:

$50,000 - $40,000 = $10,000

Therefore, the residual income for Bob's Sporting Goods in 2022 is $10,000.