Answer:
$86,050
Explanation:
Data provided in the question:
Sales = $634,000
Costs = $328,000
Depreciation expense = $73,000
Interest expense = $38,000
Tax rate = 21 percent
Dividends paid = $68,000
Now,
EBIT = Sales - Cost - Depreciation
= $634,000 - $328,000 - $73,000
= $233,000
EBT = EBIT - Interest
= $233,000 - $38,000
= $195,000
Net income = EBT - Tax
= $195,000 - (0.21 × $195,000)
= $195,000 - $40,950
= $154,050
Addition to retained earnings = Net income - Dividends
= $154,050 - $68,000
= $86,050
The amount of the addition to retained earnings is $86,050
Retained earnings is the remaining amount of net income left over after the business has paid out dividends to its shareholders.
Given date are as follows
Sales = $634,000, Costs = $328,000, Depreciation expense = $73,000,
Interest expense = $38,000, Tax rate = 21 %. The firm paid out $68,000 in cash Dividends.
• Firstly, we have to compute the Earnings before interest and taxes
EBIT = Sales - Cost - Depreciation
EBIT = $634,000 - $328,000 - $73,000
EBIT = $233,000
• Secondly, we have to compute the Earnings before tax
EBT = EBIT - Interest
EBT = $233,000 - $38,000
EBT = $195,000
• Thirdly, we compute the Net income
Net income = EBT - Tax amount
Net income = $195,000 - (21% x $195,000)
Net income = $195,000 - $40,950
Net income = $154,050
• Lastly, we compute the Addition to retained earnings
Addition to retained earnings = Net income - Dividends
Addition to retained earnings = $154,050 - $68,000
Addition to retained earnings = $86,050
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