1. RESIDUAL INCOME. Explain residual income. What does residual income represent? What does residual income measure?
2. INTERPRETING RESIDUAL INCOME. If a firm's residual income for a particular year is positive, does that mean the firm was profitable? Explain. If a firm's residual income for a particular year is negative, does that mean the firm necessarily reported a loss on the income statement? Explain. What does it mean when a firm's residual income is zero?