Assuming that a company has a policy of paying out a constant fraction of net income in the form of a cash dividends, calculate the addition to retained earnings given the following information: cash dividends = $3,000; net income = $15,000.
A) $10,000
B) $12,000
C) $14,000
D) $16,000
E) $18,000

Question

Quizplus · Accepted Answer

Retained earnings are calculated as net income minus cash dividends. Given net income is $15,000 and cash dividends are $3,000, the addition to retained earnings is $15,000 - $3,000 = $12,000.

Assuming That a Company Has a Policy of Paying Out