Final answer:
Sidewinder, Inc. has retained earnings of $78,010 after paying out $86,000 in cash dividends from a net income of $164,010. This is calculated by deducting costs, depreciation, and interest from sales, accounting for taxes, and subtracting dividends from the net income.
Step-by-step explanation:
When analyzing Sidewinder, Inc.'s financial situation, we look at its sales, costs, depreciation and interest expenses, and taxes to determine its net income. After tax has been accounted for, we then consider the cash dividends paid out to shareholders. Retained earnings are the portion of net income that is not paid out as dividends and thus reinvested into the company. These are crucial for understanding a company's ability to grow and distribute profits.
The company's net income is computed by taking the sales and subtracting the costs, depreciation, and interest expenses, then accounting for taxes. In the given case, the earnings before tax (EBT) is calculated as:
- Sales: $706,000
- Costs: $346,000
- Depreciation Expense: $91,000
- Interest Expense: $56,000
EBT = Sales - Costs - Depreciation Expense - Interest Expense
EBT = $706,000 - $346,000 - $91,000 - $56,000 = $213,000
Now, applying the tax rate of 23 percent:
Net Income = EBT - (EBT * Tax Rate)
Net Income = $213,000 - ($213,000 * 23%)
Net Income = $213,000 - $48,990 = $164,010
The cash dividends paid to shareholders was $86,000. Therefore, the retained earnings can be calculated as:
Retained Earnings = Net Income - Dividends
Retained Earnings = $164,010 - $86,000 = $78,010
This calculation indicates that Sidewinder, Inc. is retaining some of its profits within the company for future investment or to bolster its financial position.