Austin Company has established a target rate of return of 15% for all divisions. For the most recent year, Waterloo Division generated sales of $12,000,000 and expenses of $9,000,000 . Total assets at the beginning of the year were $7,000,000 and total assets at the end of the year were $9,000,000. Refer to Austin Company. In the most recent year, what was Waterloo Division's residual income?
a. $1,200,000
b. $1,650,000
c. $1,800,000
d. $1,950,000
C
Residual Income = $(12,000,000 - 9,000,000) - ((.15) * $8,000,000)
= $(3,000,000 - 1,200,000)
=$1,800,000
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