Homework Answers
Retention ratio=1-payout ratio
Net margin ratio=Net income/Sales
addition to retained earnings=Net income*Retention ratio
a.Net income=(800,000*12%)=$96,000
Retention ratio=1-0.4=0.6
Hence addition to retained earnings=96000*0.6=$57600
Hence ending retained earnings=Beginning retained earnings+addition to retained earnings
=(250,000+57600)=$307600
b.Net income=(800,000*8%)=$64000
Retention ratio=1-0.15=0.85
Hence addition to retained earnings=64000*0.85=$54400
Hence ending retained earnings=Beginning retained earnings+addition to retained earnings
=(250,000+54400)=$304400
c.Net income=(800,000*5%)=$40,000
Retention ratio=1-0.75=0.25
Hence addition to retained earnings=40,000*0.25=$10,000
Hence ending retained earnings=Beginning retained earnings+addition to retained earnings=
=(250,000+10,000)=$260,000
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