Question

You have been given the following information for PattyCake’s Athletic Wear Corp. for the year 2021:

1. Net sales = $38,450,000.

2. Cost of goods sold = $22,130,000.

3. Other operating expenses = $5,500,000.

4. Addition to retained earnings = $1,201,500.

5. Dividends paid to preferred and common stockholders = $1,920,500.

6. Interest expense = $1,805,000.

7. The firm’s tax rate is 30 percent.

In 2022:

8. Net sales are expected to increase by $9.45 million.

9. Cost of goods sold is expected to be 60 percent of net sales.

10. Depreciation and other operating expenses are expected to be the same as in 2021.

11. Interest expense is expected to be $2,080,000.

12. The tax rate is expected to be 30 percent of EBT.

13. Dividends paid to preferred and common stockholders will not change.

Calculate the addition to retained earnings expected in 2022. (Enter your answer in dollars, not millions.)

Answer 1

	2021	2022
Net Sales	38,450,000	47,900,000
Cost of goods sold	22,130,000	28,740,000
Other operating expenses	5,500,000	5,500,000
Depreciation Expense	4,555,000	4,555,000
EBIT	6,265,000	9,105,000
Interest Expense	1,805,000	2,080,000
Income before taxes	4,460,000	7,025,000
Taxes	1,338,000	2,107,500
Net Income	3,122,000	4,917,500
Dividend paid	1,920,500	1,920,500
Addition to retained earnings	1,201,500	2,997,000
Hence, the answer is $2,997,000

Α 1 2 Net Sales 3 Cost of goods sold 4. Other operating expenses 5 Depreciation Expense 6 EBIT 7 Interest Expense 8 Income before taxes 9 Taxes 10 Net Income 11 Dividend paid 12 Addition to retained earnings 13 14 Hence, the answer is $2,997,000 2021 2022 38450000 =38450000+9450000 22130000 =C2*60% 5500000 5500000 =B2-B3-B4-B6 =B5 =B7+B8 =C2-SUM(C3:05) 1805000 2080000 =B10/0.7 =C6-C7 =B8*30% =C8*30% =B12+B11 =C8-C9 1920500 =B11 1201500 =C10-C11