Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out $16,500 in dividends. What is the addition to retained earnings? a. $36,909 b. $47,615 c. $44,141 d. $47,208 e. $42,438

e. $42,438

Explanation:

The computation of the retained earning is shown below:

Earning after tax = Sales - cost - depreciation expense - interest expense - income tax expense

= $318,400 - $199,400 - $28,600 - $1,100 - $30362

= $58,938

The income tax expense equal to

= (Sales - cost - depreciation expense - interest expense) * tax rate

= ($318,400 - $199,400 - $28,600 - $1,100) * 0.34

= $30362

Now the retained earning equal to

= Earning after tax - dividend paid

= $58,938 - $16,500

= $42,438