Question

Papa Roach Exterminators, Inc., has sales of $644,000, costs of $345,000, depreciation expense of $54,000, interest expense of $26,000, and a tax rate of 35 percent. If the firm paid out $71,000 in cash dividends. What is the addition to retained earnings

Answer 1

Answer:

$71,350

Explanation:

We have the following income statement:

Sales                                $644,000

Costs                                ($345,000)

Depreciation expense    ($54,000)

Interest expense             ($26,000)

Taxable Income               $219,000

Tax rate                            35% ($76,650)

After tax income              $142,350

Dividends paid                ($71,000)

Retained earnings           $71,350

So, as we can see, the addition to retained earnings is $71,350