Determining Missing Items in Rate of Return and Residual Income Computations Dat

Question

Determining Missing Items in Rate of Return and Residual Income Computations

Data for Schmidt Company are presented in the following table of rates of return on investment and residual incomes:

Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole number.

Determining Missing Items in Rate of Return and Residual Income Computations

Data for Schmidt Company are presented in the following table of rates of return on investment and residual incomes:

Invested Assets
Income from Operations
Rate of Return on Investment Minimum Rate of Return Minimum Acceptable Income from Operations
Residual Income $940,000 $206,800 (a) 12% (b) (c) $610,000 (d) (e) (f) $73,200 $24,400 $280,000 (g) 14% (h) $30,800 (i) $210,000 $39,900 (j) 12% (k) (l)

Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole number.

a. % b. $ c. $ d. $ e. % f. % g. $ h. % i. $ j. % k. $ l. $

Explanation / Answer

WN-1) DETERMINATION OF MISSING VALUE

TABLE:-

a) Rate of Return on Investment (Income from operation / Invested Asset) X 100 ($ 206800/ $ 940000) X 100 = 22% b) Minimum Acceptable Income from Operation (Invested Asset X Minimum Rate of Return) ( $ 940000 X 12%) = $ 112800 c) Residual Income ( Income from Operations - Minimum Acceptable Income from Operations ) ($ 206800 -$ 112800 ) = $ 94000 d) Income from Operations (Minimum Acceptable Income from Operations + Residual Income ) ( $ 73200 + $ 24400) = $ 97600 e) Rate of Return on Investment (Income from operations / Invested Asset) X 100 ( $ 97600 / $ 610000) X 100 = 16% f) Minimum Rate of Return (Minimum Acceptable Income from Operations / Invested Assets) X 100 ( $ 73200 / $ 610000) X 100 = 12% g) Income from Operations (Invested Asset X Rate of Return on Investment) ( $ 280000 X 14%) =$ 39200 h) Minimum Rate of Return (Minimum Acceptable Income from Operations / Invested Assets) X 100 ( $ 30800 / $280000) X 100 = 11% i) Residual Income ( Income from operations - Minimum Acceptable Income from Operations ) ( $ 39200 - $ 30800) = $ 8400 j) Rate of Return on Investment (Income from operations / Invested Asset) X 100 ($ 39900 / $ 210000) X 100 = 19% k) Minimum Acceptable Income from Operations [Invested Assets X Minimum Rate of Return] [$210000 X 12%] = $ 25200 l) Residual Income ( Income from operations - Minimum Acceptable Income from Operations ) ($ 39900 - $25200) = $ 14700

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