Question

Upton Industries has revenues of $42,629, interest expense of $1,230, depreciation of $2,609, cost of goods sold of $23,704, dividends paid of $1,200, and administrative expenses of $7,040. Assume the tax rate is 22 percent. What is the addition to retained earnings?
A) $5,075.88.
B) $4,630.19.
C) $3,766.67.
D) $4,903.18.
E) $5,230.04.

Answer 1

Based on the various transactions, the addition to retained earnings was A. $5,075.88

What was the after tax net profit ?

This can be found as:

= (Revenues - Interest expense - Depreciation - Cost of goods sold - Admin expenses) x ( 1 - tax)

= (42,629 - 1,230 - 2,609 - 23,704 - 7,040) x ( 1 - 22%)

= $6,275.88

Addition to retained earnings

= After tax net profit - Dividends paid

= 6,275.88 - 1,200

= $5,075.88

In conclusion, option A is correct.

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