Sun, Inc. has average total assets of $300,000. The annual operating income of the company is $125,000. The target rate of return for the company is 15%. Calculate the residual income
A) $45,000
B) $175,000
C) $18,750
D) $80,000
D .D)
RI = Operating income - Minimum acceptable operating income
Operating income $125,000
Less: Minimum acceptable operating income 45,000
Residual income $80,000
Minimum acceptable operating income = Target rate of return x Average total assets
Minimum acceptable operating income = 15% x $300,000 = $45,000
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