Question

MLB Corporation uses residual income to evaluate the performance of its segments. In March, the Baseball Segment of MLB Corp. had average operating assets of $1,150,000, average liabilities of $325,000, and net operating income of $335,200. MLB Corp's minimum required rate of return is 24%.

Required:

How much residual income did the Baseball segment generate in March?

Answer 1

Answer:

Residual income          = Net operating income (-) (Minimum rate or return x Average operating assets)          =   $ 335,200 (-) [ $ 1,150,000 x 24% ]          =   $ 335,200 (-) $ 276,000          =   $ 59,200

Residual income =   $ 59,200