The Northern Division of the Smith Company Had Average Total

question 97

Multiple Choice

The Northern Division of the Smith Company had average total operating assets of $150,000 last year.Its minimum required rate of return was 12%.The division reported operating income of $20,000.What was the residual income for the Northern Division last year?

• A) $2,000.
• B) $5,000.
• C) $18,000.
• D) $20,000.

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Definitions:

Cost-Push Inflation

Inflation that occurs when the prices of inputs such as labor and raw materials go up, causing a reduction in the supply of these products.

Expansionary Gap

A condition where an economy's real GDP exceeds its potential GDP, leading to inflationary pressures.

Recessionary Gap

A situation where the real Gross Domestic Product (GDP) is lower than the potential GDP, indicating an economy operating below its full capacity.

Potential Output

The highest level of output of products and services an economy can achieve when all its resources are employed optimally.