The Sales, Income from Operations, and Invested Assets for Each

question 90

Essay

The sales, income from operations, and invested assets for each division of Salem Company are as follows:
$\begin{array}{llll}\text { Invested}&\text { Income from}\\\text { Asssets } & \text { Operations } & \text { Sales } & \\\$ 3,500,000 & \$ 410,000 & \$ 4,000,000 & \text { Division C} \\4,000,000 & 600,000 & 3,500,000 & \text { Division D} \\7,000,000 & 780,000 & 2,250,000 & \text { Division E}\end{array}$
Management has established a minimum rate of return for invested assets of 11%.
(a)Determine the residual income for each division.
(b)Bassed on residual income, which division is the most profitable?

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Definitions:

Working Capital

The difference between a company’s current assets and current liabilities, indicating its short-term financial health and operational efficiency.

Current Year

The ongoing year or the present calendar year in which transactions or activities are being accounted for.

Preceding Year

The year immediately before the current year.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period, calculated as cost of goods sold divided by the average inventory.