The Manager of Gamma Division Projects the Following for Next $\begin{array}{ll}\text { Sales } & \$ 100,000 \\\text { Operating income } & \$ 30,000 \\\text { Operating assets } & \$ 200,000\end{array}$

question 57

Multiple Choice

The manager of Gamma Division projects the following for next year:
The manager can invest in an additional project that would require $30,000 investment in additional assets and would generate $4,200 of additional income. The company's minimum rate of return is 12%.
$\begin{array}{ll}\text { Sales } & \$ 100,000 \\\text { Operating income } & \$ 30,000 \\\text { Operating assets } & \$ 200,000\end{array}$
-Refer to the Figure.What is the residual income for Gamma Division without the additional investment?

• A)$4,200
• B)$6,000
• C)$6,600
• D)$24,000

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Definitions:

Allocating Gain

The process of distributing profit among different accounts or investments.

Substance Over Form

An accounting principle that emphasizes the economic reality of transactions rather than their legal form to present a more accurate picture of a company's financial position.

Par-Value Method

An accounting method used for recording the issuance of stock, where the stock is recorded at its face or par value, and any amount received over par value is credited to an additional paid-in capital account.

Non-Controlling Interest

The equity in a subsidiary not attributable directly or indirectly to the parent company, often shown separately in the consolidated financial statements.