10 The following information is available for Kiss Company S

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.

Solution

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)