FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:5. XTreme Sports Company makes snowboards, downhill skis, cross-country skis, skateboards, surfboards, and in-line skates. The company has found it beneficial to split operations into two divisions based on the climate required for the sport: Snow Sports and Non-Snow
Sports. The following divisional information is available for the past year:
¹(Click the icon to view the information.)
Compute each division's residual income. Interpret your results. Are your results consistent with each division's ROI?
First enter the formula, then calculate each divisions residual income.
(1)
(2)
Snow
Non-Snow
Interpret your results.
This result is (6).
1: Data Table
XTreme's management has specified a target 15% rate of return.
(1) O
with the ROI calculations.
O Capital turnover
O Current liabilities
O Operating income
Both divisions have (4)
residual income. This means that the divisions are earning income at a rate that (5).
Are your results consistent with each division's ROI?
O Sales
O Total assets
x
(2) O
X
(3)
Snow Sports
Non-Snow Sports
O Capital turnover
O Current liabilities
O Operating income
) =
%) =
%) =
O Sales
O Total assets
Residual income
Operating Income
884,000 $
1,360,000 $
Sales
5,200,000 $
$
$ 8,000,000 $
(3) O
O Effective tax rate
O Target rate of return
O WACC
management's minimum expectations.
Total Assets Current Liabilities
4,400,000 $
6,500,000 $
(4) O negative
O positive
460,000
685,000
(5) O exceeds
O is equal to
O is lower than
ROI
20.1%
20.9%
(6) O consistent
O not consistent
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