Question

Redding Industrial Supply had common stock of $6,800 and retained earnings of $4,925 at the beginning of the year. At the end of the year, the common stock balance is $7,000 and the retained earnings account balance is $5,498. The net income for the year is $938. What is the retention ratio?

Answer 1

61.09 %

Step-by-step explanation:

For computing the retention ratio we need to do the following calculations

Beginning Retained earnings = $4,925

And,

Net Income = $938

So, before dividend Retained earnings is

= $4,925 + $938

= $5,863

Now the total amount paid is

= before dividend Retained earnings - ending retained earnings

= $5,863 - $5,498

= $365

Now

The Dividend payout ratio is

= Dividend paid ÷ Net Income

= $365 ÷ $938

= 0.389126

And, finally

Retention ratio is

= 1 - Dividend payout ratio

= 1 - 0.389126

= 0.610874 or 61.09 %