Calculate retention ratio given the following information: cash dividends paid = $35,525; sales = $900,000; cost of goods sold = $625,000; selling and administrative expenses = $100,000; interest expense = $30,000; tax rate= 30%.

Question

Quizplus · Accepted Answer

To calculate the retention ratio, first find the net income: Sales - Cost of Goods Sold - Selling and Administrative Expenses - Interest Expense = $900,000 - $625,000 - $100,000 - $30,000 = $145,000. Then, calculate taxes: $145,000 * 30% = $43,500. Net income after tax = $145,000 - $43,500 = $101,500. Retention ratio = (Net Income - Dividends) / Net Income = ($101,500 - $35,525) / $101,500 = 65%.

Calculate Retention Ratio Given the Following Information: Cash Dividends Paid