Question

# Falcon Company has the following operating data for the past year: Sales \$783,000 Variable Cost \$250,000...

Falcon Company has the following operating data for the past year:

 Sales \$783,000 Variable Cost \$250,000 Fixed Cost \$100,000 Minimum required rate of return 11%

Balance Sheet Data for beginning and end of year:

 Assets Beginning Ending Cash \$5,000 \$5,000 Accounts Receivable \$35,000 \$40,000 Inventory \$90,000 \$95,000 Net PP&E \$100,000 \$115,000 Land (held for future use) \$40,000 \$40,000 Investments in affiliates \$5,000 \$0 Total Assets \$275,000 \$295,000 Liabilities & SH Equity Short Term Debt \$22,000 \$27,000 Long Term Debt \$116,000 \$117,000 Stockholder's Equity \$137,000 \$151,000 Total Liabilities and SH Equity \$275,000 \$295,000

(Q): Falcon Company's residual income for the past year is closest to:

(A): \$

 Beginning End Average Shareholder equity 137000 151000 144000 Here Average Shareholder equity is 144000 Minimum required rate of return 11% So minimum return for the company is 144000*11% 15840 Sales 783000 Variable cost 250000 Contribution 533000 Fixed cost 100000 Profit before tax 433000 As Profit before tax of company meets the criteria of minimum return for the company. So we can say that company is earning more than what the shareholder expected So company is earning extra income of 433000 - 15840 It means company is earning 417160 extra income.

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