Deskin Corporation Uses Residual Income to Evaluate the Performance of Its

question 17

Multiple Choice

Deskin Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 19%. In February, the Commercial Products Division had average operating assets of $780,000 and net operating income of $139,800. What was the Commercial Products Division's residual income in February?

• A) -$8,400
• B) -$26,562
• C) $8,400
• D) $26,562

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Definitions:

Cash Basis

An accounting method where revenues and expenses are recognized when cash is received or paid, rather than when earned or incurred.

Indirect Method

A way of presenting the cash flow statement where net income is adjusted for the effects of transactions that do not involve cash.

Exchange

is a marketplace where securities, commodities, derivatives, or other financial instruments are traded.

Treasury Stock

Treasury stock refers to previously issued shares that have been repurchased by the issuing company, reducing the amount of outstanding stock on the open market.