last year appear below 3, Financial data for Redstone Company for Redstone Compa

Question

last year appear below 3, Financial data for Redstone Company for Redstone Company Balance Sheet Beginning Ending Balance Balance Assets ash S120,000 $160,00 1 10,000 100,00 Accounts receivable 60,00 Plant and equipment (net) nvestment in Balsam 180,00 50,000 60,000 0.00 Total assets Liabilities and owners Accounts payable ong-term debt $70,000$90,00 500,000 500.000 Owners' equity Total liabilities and owners' equity 630,000$660,000 Redstone Company ncome Statement $1,222,000 1,099,80 Sales Less operating expenses 122,200 Net operating income ess interest and taxes $60,000 0.000 Tax expense Net income 42.200 The company paid dividends of $32,200 last year. The Board of Directors of Redstone has set a minimum required rate of retum of 15%. What was the company's residual income last year? (Hint. "Investment in Balsam Company" and "Land (undeveloped)" should be excluded when calculating average operating assets.) A. $4,700 B. $28,.200 C. $51,700 D. $18,800 E. None of the above

Explanation / Answer

Beginning Operating assets = 630000-50000-120000= 460000 Ending Operating assets = 660000-60000-120000= 480000 Average operating assets=(460000+480000)/2= 470000 Residual income = 122200-(470000*15%)= 51700 Option C is correct

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