Question

Consider the following income statement for the Heir Jordan Corporation:
HEIR JORDAN CORPORATION
Income Statement
Sales $ 49,000
Costs 40,300
Taxable income $ 8,700
Taxes (22%) 1,914
Net income $ 6,786
Dividends $ 2,400
Addition to retained earnings 4,386


A 20 percent growth rate in sales is projected.
Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. (Input all answers as positive values. Do not round intermediate calculations.)

What is the projected addition to retained earnings? (Do not round intermediate calculations.)

Answer 1

Answer:

HEIR JORDAN CORPORATION

The projected addition to retained earnings is $5,743.

Explanation:

a) Data and Calculations:

HEIR JORDAN CORPORATION

Income Statement              Current Year   Projected

Sales                                      $ 49,000       $58,800 ($49,000 * 1.2)

Costs                                        40,300          48,360 (40,300 * 1.2)

Taxable income                      $ 8,700           10,440 (8,700 * 1.2)

Taxes (22%)                                1,914             2,297 (1,914 * 1.2)

Net income                            $ 6,786              8,143 (6,786 * 1.2)

Dividends                              $ 2,400             2,400

Addition to retained earnings 4,386             5,743