Question

Given the following financial statements, what is the forecasted retained earnings if all revenues, expenses, assets and liabilities remain a constant percent of sales, and sales increase by 20%? Assume the common stock account will remain fixed and the dividend payout ratio remains constant.
             

		$3,776
		$3,236
		$1,896

Answer 1

Forecasted retained earnings = 1580 + 2196 - 540 = 3236

Option, $3236

Workings:

	Current	Projected
Net Sales	17300	20760
Cost of goods sold	10600	12720
Depreciation	3250	3900
Earnings before interest and tax	3450	4140
Interest expense	680	816
Earnings before tax	2770	3324
Tax	940	1128
Earnings after tax	1830	2196
Dividends	450	540