Residual Income The income from operations and the amount of

Residual Income The income from operations and the amount of invedad assets in each division of Devon Industries are as follows Income from Operations Invested Assets Sporting Goods Division Health Care Division Commercial Division Assume that management has established a 12% minimum acceptable rate of return for invested assets a. Determine the residual income for each division $160,600 125,400 163,800 30,000 660,000 630,000 Commercial Division $163,800 Sporting Goods Division Health Care Division $160,600 $125,400 Income from operations Minimum amount of income from operations Residual income b. Which division has the most residual income? Commercial Division Health Care Division Sporting Goods Division

Solution

Ans.(a) Determination of the residual Income for each division: Sporting Goods Division Health Care Division Commercial Division Income from Operations $                     160,600 $                     125,400 $                     163,800 Minimum amount of Income from Operations                            87,600                            79,200                            75,600 Residual Income $                       73,000 $                       46,200 $                       88,200 Ans.(b) Commercial Division has the most residual income i.e. $88,200.