Polaris Industries is forecasting its financial statements for Year 6. Selected financial information for Year 5 is provided in the table. What is Retained Earnings for Year 6? Selected Financial Information
Polaris Industries Inc. ($000s)
$$\begin{array} { | c | c | c | c | }
\hline & \begin{array} { c }
\text { Year 5 }
\end{array} & \begin{array} { c }
\text { Ratios } \
\text { (to Sales) }
\end{array} & \begin{array} { c }
\text { Forecast } \
\text { Year 6 }
\end{array} \
\hline \text { Revenue } & \$ 1,908,459 & & \$ 1,803,494 \
\hline \text { COGS } & 1,454,374 & 0.762067 & \
\hline \text { SG\&A } & 213,114 & 0.111668 & \
\hline \text { Dep. Exp. } & 28,632 & & 30,084 \
\hline \text { EBIT } & 212,339 & & \
\hline \text { Int. Exp. } & 4,713 & & 2,117 \
\hline \text { EBT } & 207,626 & & \
\hline \begin{array} { c }
\text { Provision for Income } \
\text { taxes }
\end{array} & 64,348 & 31 \% * & \
\hline \text { Net Income } & \$ 143,278 & & \
\hline \text { Dividends } & & & \$ 700 \
\hline \text { Retained Earnings } & \$ 369,240 & & \
\hline
\end{array}$$ *Tax rate is a proportion of Earnings before Taxes.

Question

Polaris Industries is forecasting its financial statements for Year 6. Selected financial information for Year 5 is provided in the table. What is Retained Earnings for Year 6? Selected Financial Information
Polaris Industries Inc. ($000s)
$$\begin{array} { | c | c | c | c | } 
\hline & \begin{array} { c } 
\text { Year 5 }
\end{array} & \begin{array} { c } 
\text { Ratios } \
\text { (to Sales) }
\end{array} & \begin{array} { c } 
\text { Forecast } \
\text { Year 6 }
\end{array} \
\hline \text { Revenue } & \$ 1,908,459 & & \$ 1,803,494 \
\hline \text { COGS } & 1,454,374 & 0.762067 & \
\hline \text { SG\&A } & 213,114 & 0.111668 & \
\hline \text { Dep. Exp. } & 28,632 & & 30,084 \
\hline \text { EBIT } & 212,339 & & \
\hline \text { Int. Exp. } & 4,713 & & 2,117 \
\hline \text { EBT } & 207,626 & & \
\hline \begin{array} { c } 
\text { Provision for Income } \
\text { taxes }
\end{array} & 64,348 & 31 \% * & \
\hline \text { Net Income } & \$ 143,278 & & \
\hline \text { Dividends } & & & \$ 700 \
\hline \text { Retained Earnings } & \$ 369,240 & & \
\hline
\end{array}$$ *Tax rate is a proportion of Earnings before Taxes.

Quizplus · Accepted Answer

To calculate Retained Earnings for Year 6, first calculate the Net Income for Year 6:  EBT = Revenue - COGS - SG&A - Depreciation - Interest Expense  EBT = 1,803,494 - (1,803,494 * 0.762067) - (1,803,494 * 0.111668) - 30,084 - 2,117 = 1,803,494 - 1,374,500 - 201,292 - 30,084 - 2,117 = 195,501  Provision for Income Taxes = 195,501 * 31% = 60,605  Net Income = EBT - Provision for Income Taxes = 195,501 - 60,605 = 134,896  Retained Earnings for Year 6 = Retained Earnings Year 5 + Net Income Year 6 - Dividends Year 6 = 369,240 + 134,896 - 700 = 503,447

Polaris Industries Is Forecasting Its Financial Statements for Year 6