Determining Missing Items in Rate of Return and Residual Income Computations Dat

Question

Determining Missing Items in Rate of Return and Residual Income Computations

Data for Schmidt Company are presented in the following table of rates of return on investment and residual incomes:

Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole number.

Invested Assets
Income from Operations
Rate of Return on Investment Minimum Rate of Return Minimum Acceptable Income from Operations
Residual Income $870,000 $200,100 (a) 13% (b) (c) $520,000 (d) (e) (f) $62,400 $20,800 $380,000 (g) 14% (h) $38,000 (i) $290,000 $58,000 (j) 12% (k) (l)

Explanation / Answer

Solution:

Here is the missing items

a. Return on Investment = Income from Operation / Invested Assets x 100 = 200,100 / 870,000 x 100 = 23%

b. Minimum Acceptable Income from Operation = Invested Assets x Minimum Rate of Return = 870,000*13% = $113,100

c. Residual Income = Income from Operation – Minimum Acceptable Income from Operation = 200,100 – 113,100 = $87,000

d. Income From Operation = Residual Income + Minimum Acceptable Income from Operation = 20,800 + 62,400 = $83,200

e. Rate of Return on Investment = Income From operation (d) / Invested Assets x 100 = 83,200 / 520,000 x 100 = 16%

f. Minimum Rate of Return = Minimum Acceptable Income from Operation / Invested Assets x 100

= 62,400 / 520,000 x 100

= 12%

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Pls ask separate question for remaining part.

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