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Carissa Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2016:

 Cash $4,100 Cost of Goods Sold $18,800 Selling Expenses 1,300 Equipment, net 8,500 Accounts Payable 4,900 Accrued Liabilities 2,000 Common Stock 2,820 Sales Revenue 42,000 Notes Payable, long-term 400 Accounts Receivable 3,400 Merchandise Inventory 1,200 Interest Expense 20 Administrative Expenses 3,100 Sales Discounts 4,300 Sales Returns and Allowances 7,400\begin{array}{lrlr} \text { Cash } & \$ 4,100 & \text { Cost of Goods Sold } & \$ 18,800 \\ \text { Selling Expenses } & 1,300 & \text { Equipment, net } & 8,500 \\ \text { Accounts Payable } & 4,900 & \text { Accrued Liabilities } & 2,000 \\ \text { Common Stock } & 2,820 & \text { Sales Revenue } & 42,000 \\ \text { Notes Payable, long-term } & 400 & \text { Accounts Receivable } & 3,400 \\ \text { Merchandise Inventory } & 1,200 & \text { Interest Expense } & 20 \\ \text { Administrative Expenses } & 3,100 & \text { Sales Discounts } & 4,300 \\ \text { Sales Returns and Allowances } & 7,400 & & \end{array}

Prepare Carissa Communications's multi-step income statement for the year ended July 31, 2016.

Question

Assume a target income of 12% of average invested assets. Compute residual income for each division.

Investment Center Net Income Average Assets Return on Investment
Cameras and camcorder $4,500,000 $20,000,000 _____%
Phones and communications 1,500,000 12,500,000 _____
Computers and accessories 800,000 10,000,000 _____

Solution

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In reference to QS 24-9, this exercise asks us to calculate the residual income of each of the investment centers.

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