Question

Beach Front Industries has sales of $589000, costs of $280000, depreciation expense of $37000, interest expense of $17000, and a tax rate of 32 percent. The firm paid $59000 in cash dividends. What is the addition to retained earnings?

A. $76,320B. $81,700C. $95,200D. $121,680E. $103,460

Answer 1

addition to retained earnings is $114400

Step-by-step explanation:

Given data

sales = $589000

costs = $280000

depreciation expense = $37000

interest expense = $17000

tax rate = 32 percent

cash dividends = $59000

to find out

the addition to retained earnings

solution

first we calculate the profit before tax that is

profit before tax = sale - cost - depreciation - interest

profit before tax = 589000 - 280000 t - 37000 - 17000

profit before tax = 589000 - 280000 - 37000 - 17000

profit before tax is $255000

now calculate profit after tax that is

profit after tax = profit before tax × (1- tax rate )

profit after tax = 255000 × (1- 32% )

profit after tax is $173400

so

addition to retained earnings is

= profit after tax - dividend

addition to retained earnings = 173400 - 59000

addition to retained earnings is $114400