The following Income Statement and Balance Sheet should be used: Creative Analysis, Inc. 2015 Income Statement...
The following Income Statement and Balance Sheet
should be used:
Creative Analysis, Inc.
2015 Income Statement
Net sales
$8,500
Cost of goods sold
7,210
Depreciation
400
Earnings before interest and
taxes
890
Interest paid
40
Taxable Income
$850
Taxes
310
Net Income
$540
Dividends
$324
Addition to retained earnings
$216
Creative Analysis, Inc.
2015 Balance Sheet
Cash
$1,600
Accounts Payable
$2,075
Accounts Rec.
975
Long-term debt
425
Inventory
2,425
Common stock
3,000
Total
$5,000
Retained earnings
1,700
Net fixed
assets
2,200
Total assets
$7,200
Total Liabilities & equity
$7,200
Assume the profit margin and the dividend payout ratio
of Creative Analysis, Inc. are constant. If sales increase by 8
percent, what is the pro forma retained earnings?
Select one:
a. $237.60
b. $1,870.00
c. $1,933.28
d. $356.40
Homework Answers
If profit margin & divident payout ratio are constant then Pro forma retained earning is calculated as:-
= Retained earning on 2015 balance sheet + [Net Income - Dividend] * (1 + Increase rate of Sales)
= $1,700 + [540 - 324] * (1 + 8%)
= $1,700 + [216] * (1.08)
= $1,700 + 233.28
= $1,933.28
Hence correct answer is
c. $1,933,.28
Add Answer to:
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