Question

How do I get the firms addition to retained earnings at the end? I have the answer, but don't know how to arrive at it.

You are a summer intern at the office of a local tax preparer. To test your basic knowledge of financial statements, your manager, who graduated from your alma mater 2 years ago, gives you the following list of accounts and asks you to prepare a simple income statement using those accounts a. Arrange the accounts into a well-labeled income statement. Make sure you label and solve for gross profits, operating profits, and net profits before taxes. b. Using a 35% tax rate, calculate taxes paid and net profits after taxes. c. Assuming a dividend of $1.14 per share with 4.24 million shares outstanding, calculate EPS and additions to retained earnings. Peces 345.45 225.92 119.53 Sales Less Cost of goods sold Gross Profit Less Operating expenses Sales expense General & admin exp Lease expense Depreciation expense Total Operating expense Operating Profits (EBIT) Less Interest expense Net profits before taxes 18.95 22.26 3.16 25.86 70.23 49.30 3.82 45.48 B: Net profits before taxes Less Taxes 35% Net profits after taxes 45.48 15.92 29.56 EPS 6.97E-06 6.97 Firms additions to retained earnings are 24.73

Answer 1

Hi

here Net profit After Tax = $29.56 Mn

total dividend = 1.14*4.24 = $4.8336 Mn

Total Addition to Retained Earning = Net Profit after Tax - Total Dividend

   = 29.56 - 4.8336

   = $24.73 Mn

Thanks