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.

Invested Assets
Income from Operations
Rate of Return on Investment Minimum Rate of Return Minimum Acceptable Income from Operations
Residual Income $870,000 $200,100 (a) 13% (b) (c) $520,000 (d) (e) (f) $62,400 $20,800 $380,000 (g) 14% (h) $38,000 (i) $290,000 $58,000 (j) 12% (k) (l)

Explanation / Answer

a) =200100/870000 = .23 = 23%

b) = 13% * 870,000 = 113,100

c) = 200,100- 113,100 = 87,000

d) = 62,400 + 20,800 = 83,200

e) = 83,200/ 520,000 = 16%

f) = 62,400/520,000 = 12%

g) = 14% * 380,000 = 53200

h) = 38,000/380,000 = 10%

i) = 53,200 - 38,000 = 15,200

j) = 58,000/ 290,000 = 20%

k) = 12% * 290,000 = 34,800

l) = 58,000 - 34,800 = 23,200

Invested Assets Income from Operations Rate of return Min. rate of return Minimum acceptable income Residual Income $870,000 $200,100 23% (a) 13% $113,100 (b) $87,000 (c) $520,000 $83,200 (d) 16% (e) 12% (f) $62,400 $20,800 $380,000 53,200 (g) 14% 10% (h) $38,000 $15,200 (i) $290,000 $58,000 20% (j) 12% $34,800 (k) $23,200 (l)

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