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Calculating Residual Income Barnard Manufacturing earned operating income last year as shown in the following income statement: Sales$4,000,000 Cost of goods sold2,100,000 Gross margin$1,900,000 Selling

Calculating Residual Income

Barnard Manufacturing earned operating income last year as shown in the following income statement:

Sales$4,000,000

Cost of goods sold2,100,000

Gross margin$1,900,000

Selling and administrative expense1,100,000

Operating income$800,000

Less: Income taxes (@ 40%). 320,000

Net income$480,000

At the beginning of the year, the value of operating assets was $2,700,000. At the end of the year, the value of operating assets was $2,300,000.

Barnard requires a minimum rate of return of 15%.

Calculate:

1.Average operating assets$

2.Residual income

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