Question

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): $

Answer 1

	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.