Andersen's Nursery has sales of $318,400, CoGS of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 35 percent. The firm paid out $23,400 in dividends. What is the addition to retained earnings?

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2 February, 14:25

Andersen's Nursery has sales of $318,400, CoGS of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 35 percent. The firm paid out $23,400 in dividends. What is the addition to retained earnings?

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Reilly Neal · Answer 1

The addition to retained earnings is $34,645

Explanation:

Income before tax of Andersen's Nursery = Sales - CoGS - depreciation expense - interest expense = $318,400 - $199,400 - $28,600 - $1,100 = $89,300

Tax = Income before tax x tax rate = 35% x $89,300 = $31,255

Net income = Income before tax - Tax = $89,300 - $31,255 = $58,045

The addition to retained earnings = Net income - paid dividends = $58,045 - $23,400 = $34,645