Question

has sales of $690,000, costs of $342,000, depreciation expense of $87,000, interest expense of $52,000, and a tax rate of 24 percent. The firm paid out $82,000 in cash dividends. What is the addition to retained earnings

Answer 1

Answer:

$76,840

Explanation:

The computation of the addition to the retained earning is shown below;

But before that following calculations must be done

Earnings before interest and taxes (EBIT) is

= Sales - Cost - Depreciation

= $690,000 - $342,000 - $87,000

= $261,000

Now

EBT = EBIT - Interest

= $261,000 - $52,000

= $209,000

Now

Net income = EBT × (1 - Tax)

= $209,000 × (1 - 24%)

= $158,840

And finally

Addition to retained earnings is

= Net income - Dividends

= $158,840 - $82,000

= $76,840