Question

The income from operations and the amount of invested assets in each division of Beck Industries are as follows: Income from Operations Invested Assets Retail Division $5,400,000 $30,000,000 Commercial Division 6,250,000 25,000,000 Internet Division 1,800,000 12,000,000 Assume that management has established a 9% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Income from operations $5,400,000 $6,250,000 $1,800,000 Minimum acceptable of income from operations Residual income $ $ $ b. Which division has the most residual income?

Answer 1

a. Residual income $2,700,000 $4,000,000 $720,000

b. Commercial division

Step-by-step explanation:

The computation is shown below:

As we know that

Residual income = Income from operations - Minimum income from operations

And, the same is applied below

a. Particulars Retail Commercial Internet

Income from operations $5,400,000 $6,250,000 $1,800,000

Minimum amount of income from operations

$2,700,000 $2,250,000 $1,080,000

($30,000,000 × 9%) ($25,000,000 × 9%) ($12,000,000 × 9%)

Residual income $2,700,000 $4,000,000 $720,000

b. As we can see that the commercial has highest residual income than retail and internet division