Final answer:
Dobson's Auto retained $400,000 in earnings after paying out a 20% dividend. Answering the self-check question, a firm with $1 million in sales and a total of $950,000 in expenses would have an accounting profit of $50,000.
Step-by-step explanation:
Dobson's Auto earned $500,000 last year and had a 20% dividend payout ratio. The amount of money added to retained earnings is calculated by finding the portion of earnings not paid out as dividends. Since 20% of the earnings are paid out as dividends, 80% are retained. Therefore, the retained earnings would be $500,000 multiplied by 80%, or $400,000.
Now, for the self-check question: If a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, its accounting profit is found by subtracting these expenses from the sales revenue. The accounting profit would be $1 million minus ($600,000 + $150,000 + $200,000), which equals $50,000.