Question

Pharrell, Inc., has sales of $587,000, costs of $271,000, depreciation expense of $70,000, interest expense of $37,000, and a tax rate of 30 percent. The firm paid out $37,000 in cash dividends.What is the addition to retained earnings? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Answer 1

Answer:

$109,300

Explanation:

The addition to retained earnings will be computed as follows:

Sales                                                                     $587,000

Costs                                                                  - $271,000

Depreciation expense                                      - $70,000

EBITA                                                                   $246,000

Interest expense                                              -  $37,000

Taxable income                                                 $209,000

Taxes @30% (209,000 X 0.3 )                           $62,700

Net income                                                          $146,300

Net income = Addition to retained earnings + dividends paid

$146,300    = x + $37,000

$146,300 - $37,000 = x

$109,300 is the addition to retained earnings.