Question

Huntswell Corporation has two major​ divisions: Agricultural Products and Industrial Products. It provides the following information for the year 2014. Agriculture Division Industrial Division Sales revenue ​$140,000 ​$1,040,000 Operating income $ 47 comma 000 ​$220,000 Average total assets $ 100 comma 000 ​$5,540,000 Target rate of return 14​.0% ​14.0% Calculate the residual income for the Agriculture division.

Answer 1

$33,000

Step-by-step explanation:

Data given

Operating income = $47,000

Target rate of return = 14%

Average assets = $100,000

The computation of the residual income for the Agriculture division is given below:-

Residual income = Operating income - Required return

= $47,000 - ($100,000 × 14%)

= $47,000 - $14,000

= $33,000

Therefore for computing the residual income we simply deduct the required return from operating income