connect. ACCOUNTING Quest 7· value 1000 points Exercise 11-2 Residual Income ILO

ID: 2574059 • Letter: C

Question

connect. ACCOUNTING Quest 7· value 1000 points Exercise 11-2 Residual Income ILO11-21 Juniper Design Ltd of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $410,000 on sales of $1,700,000. The company's average operating assets for the year were $1,900,000 and its minimum required rate of return was 11%. Required: Compute the company's residual income for the year Average operating assets Net operating income Minimum required return Residual income References eBook &Resources; Expanded table Dimculty 1 Easy Exercise 11-2 Residual Income [LO11-2 Leaning Objective: 11-02 Compute residual income understand its strengths and weaknesses

Explanation / Answer

Juniper Design Ltd

Determination of the residual income:

Residual income = net operating income – return on average assets

Net operating income = $410,000

Operating assets = $1,900,000

Minimum expected return = 11%

Expected return on operating assets = $1,900,000 x 11% = $209,000

Residual income = $410,000 - $209,000 = $201,000

Average operating assets

$1,900,000

Net Operating Income

$410,000

Minimum required return

$209,000

Residual income

$201,000