Question

The following information is provided for each division. Investment Center Net Income Average Assets Cameras and camcorders $ 6,800,000 $ 20,600,000 Phones and communications 3,010,000 21,500,000 Computers and accessories 1,100,000 16,600,000 Assume a target income of 14% of average invested assets. Required: Compute residual income for each division. (Enter losses with a minus sign.)

Answer 1

Answer and Explanation:

The calculation of the residual income for each division is given below:

Target Income Cameras & Camcorders Phones & Comm Computers & Acc.

Average Assets $20,600,000 $21,500,000 $16,600,000

Target Return 14% 14% 14%

Target Income $2,884,000 $3,010,000 $2,324,000

Residual Income Cameras & Camcorders Phones & Comm Computers & Acc.

Net Income $6,800,000 $3,010,000 $1,100,000

Less: Target Income $2,884,000 $3,010,000 $2,324,000

Residual Income $3,916,000 $0 -$1,224,000