Question

. Cumberland Industries' most recent sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's income statement. Also calculate total dividends and the addition to retained earnings.

Answer 1

The total dividends and the addition to retained earnings is $7,950,000 and $2,3850,000 respectively.

Step-by-step explanation:

Income statement : It is a statement which shows an income after deducting all expenses, taxes, interest and depreciation.

where,

Operating costs = 85% of sales

= 85% × $455,000,000

= $386,750,000

Depreciation = 10% of net fixed assets

= 10% × $67,000,000

= $6,700,000.00

Tax rate is applied on remaining balance

And,

EBITDA = Earning before interest, tax, depreciation and amortization

EBIT = Earning before interest and tax

EBT = Earning Before tax

Kindly find the attachment sheet in which the income statement is constructed.

The dividend is = 25 % of net income

= 25% × $31,800,000

= $7,950,000

Retained earning = Net income - dividend

= 31,800,000 - $7,950,000

= $2,3850,000

Hence, the total dividends and the addition to retained earnings is $7,950,000 and $2,3850,000 respectively.