What is "residual income"?

A Total revenue

B Operating income minus a charge for the cost of capital employed

C Gross profit

D Cash on hand

✓ Correct Answer: Option B

Residual income = Operating income − (Required rate of return × Invested capital). It measures income above minimum required return.

💡 Why is B) the correct answer?

The correct answer to the question "What is "residual income"?" is Option B: Operating income minus a charge for the cost of capital employed.

The other options — A) Total revenue, C) Gross profit, D) Cash on hand — are incorrect for this CPA Exam Prep question. As explained above: Residual income = Operating income − (Required rate of return × Invested capital). It measures income above minimum required return.

📚 About This CPA Exam Prep Practice Question

This 3-level CPA Exam Prep question from the Business Environment (BEC) topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CPA Exam Prep practice test or use flashcards for spaced repetition review.

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What is "residual income"?

✓ Correct Answer: Option B

📚 About This CPA Exam Prep Practice Question

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