Question

Higgins, Inc., has sales of $521,000, costs of $297,900, depreciation expense of $42,700, interest expense of $20,800, a tax rate of 24 percent, and paid out $27,800 in cash dividends. If the firm paid out $48,000 in cash dividends, the addition to retained earnings is $ _____ .

Answer 1

$93,496

Step-by-step explanation:

Sales: $521,000

Cost: $297,900

Depreciation: $42,700

EBIT: $180,400 (Sales-Cost-Depreciation)

Interest Expense: $20,800

EBT: $159,600 (EBIT-Interest Expense)

Tax Rate (24%): $38,304 ($159,600 x 24% (.24))

Net Income: $121,296 (%159600-$38,304)

Dividends pd: $27,800

Addition to Retained Earnings: $93,496 (Net Income-Dividends Pd)

Answer 2

$45,496

Step-by-step explanation:

With regards to the above, first we need to calculate the net income.

Sales

$521,000

Less : cost of goods sold

($297,900)

Less : depreciation expense

($42,700)

EBIT

$180,400

Less : interest expense

($20,800)

Taxable income

$159,600

Less : Tax 24% × $159,600

(38,304)

Net income

$121,296

Therefore, addition to retained earning

= Net profit - Cash dividends paid out

= $121,296 - $27,800 - $48,000

= $45,496