10. The following information is available for Kiss Company Sales $100,000 394,0
ID: 2400350 • Letter: 1
Question
10. The following information is available for Kiss Company Sales $100,000 394,000 $40,000 $25,000 10% Operating expenses assets Cost of capital What is Kiss Company's residual income? A $2,000 B $2,500 C. $3,500 D. $4,400 E. None of the above. 11. The following information is available about the Appliance Division of Rainier Company. Rainier requires a return of 9% from all divisions. Appliance Division Earnings from Operations Appliance Division Sales Appliance Division $18,462,000 $112,600,000 $173,700,000 Identifiable Assets Required: (use four decimal places in your calculation) a. Compute the ROI for the Appliance Division. b. Compute the residual income for the Appliance Division.Explanation / Answer
10.
Operating income = Sales – Operating assets = 100,000 – 94,000 = $6,000
Residual income = Operating income – (Operating assets × Cost of capital)
= $6,000 – ($40,000 × 10%)
= $6,000 - $4,000
= $2,000
Answer: A
11.
ROI = (Earnings / Assets) × 100
= ($18,462,000 / $173,700,000) × 100
= 10.6286% (Answer)
Residual income = Operating income – (Operating assets × Required rate of return)
= $18,462,000 – ($173,700,000 × 9%)
= $18,462,000 - $15,633,000
= $2,829,000 (Answer)
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