Question

Intel reports retained earnings at the end of fiscal 2016 of $40,747 million and retained earnings at the end of fiscal 2015 of $37,614 million. The company reported dividends of $4,925 million and other transactions with shareholders that reduced retained earnings during the year by $2,258 million. How much net income did the firm report in fiscal 2016? Select one:

a. $3,133 million net income
b. $3,133 million net loss
c. $10,316 million net income
d. $10,316 million net loss
e. None of the above

Answer 1

Answer: c. The firm reported a $10,316 million income in fiscal 2016.

We arrive at the answer as follows:

We use the following formula for Retained Earnings (RE):

`RE_(2016) = RE_(2015) + Additions to RE in 2016 - Transactions that reduce RE`

Rearranging we get,

`RE_(2016) - RE_(2015) + Transactions that reduce RE = Additions to RE in 2016`

Then we use the following formula to arrive at Net Income:

`Net Income = Dividends + RE`

Retained Earnings at the end of 2016 $40,747 million

less: Retained Earnings at the end of 2015 - $37,614 million

$3,133 million

add: Transactions that reduced retained earnings $2,258 million

Additions to retained earnings in 2016 $5,391 million

Add: Dividends paid to share holders $4,925 million

Net Income $10,316 million