Answer:
The question is not complete.
Here is the complete question:
You have been given the following information for PattyCake’s Athletic Wear Corp. for the year 2021:
Net sales = $38,900,000.
Cost of goods sold = $22,220,000.
Other operating expenses = $6,400,000.
Addition to retained earnings = $1,210,500.
Dividends paid to preferred and common stockholders = $1,943,000.
Interest expense = $1,850,000.
The firm’s tax rate is 30 percent.
In 2022:
Net sales are expected to increase by $9.90 million.
Cost of goods sold is expected to be 60 percent of net sales.
Depreciation and other operating expenses are expected to be the same as in 2021.
Interest expense is expected to be $2,125,000.
The tax rate is expected to be 30 percent of EBT.
Dividends paid to preferred and common stockholders will not change.
Calculate the addition to retained earnings expected in 2022. (Enter your answer in dollars, not millions.)
Here is the answer:
Addition to retained earnings is $ 5,753,500
Explanation:
Addition to retained earnings is derived after deducting dividend paid to preferred and common stockholders from the earnings after tax of the entity.
In the case of PattyCake’s Athletic Wear Corp. , it is important to calculate earning after tax before deducting dividend to get addition to retained earnings:
Calculation of Earning after Tax
Earning after Tax is derived by deducting, cost of sales, operating expenses, interest and tax from the entity net sales.
Net Sales ( $38,900,000. + $9,900,000) 48,800,000
Cost of Sales (0.6 * 48,800,000) (29,280,000)
Gross profit 19,520,000
Depreciation and other operating expenses (6,400,000)
Earning before Interest and Tax 13,120,000
Interest (2,125,000)
Earning before Tax 10,995,000
Tax @ 30% EBT (3,298,500)
Earning after Tax 7,696,500
After this, dividend paid is removed to get addition to retained earnings
= $7,696,500 - $1,943,000
=$ 5,753,500
