Dartford Company reported the following financial data for one of its divisions for the year; average investment center total assets of $3,600,000; investment center income $625,000; a target income of 12% of average invested assets. The residual income for the division is:
Question
Dartford Company reported the following financial data for one of its divisions for the year; average investment center total assets of 625,000; a target income of 12% of average invested assets. The residual income for the division is:
Solution
To calculate the residual income for the division, we first need to calculate the target income.
Step 1: Calculate the target income The target income is given as 12% of average invested assets. The average invested assets are 432,000.
Step 2: Calculate the residual income The residual income is the investment center income minus the target income. The investment center income is given as 193,000.
Therefore, the residual income for the division is $193,000.
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