The following balance sheet and income statement should be used: Hilltop, Inc. is currently operating at 89% of capacity. The proﬁt margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 10% next year. What is the
Projected addition to retained earnings for next year?

Question

The following balance sheet and income statement should be used:   Hilltop, Inc. is currently operating at 89% of capacity. The proﬁt margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 10% next year. What is the
Projected addition to retained earnings for next year?

Quizplus · Accepted Answer

To calculate the projected addition to retained earnings, we need to find the net income for next year first by using the income statement.

Net income = Sales x profit margin x (1 - dividend payout ratio) 
= $2,205,000 x 8.5% x (1 - 55%) 
= $85,958

Then we need to subtract any dividends paid from this amount to arrive at the projected addition to retained earnings.

Projected addition to retained earnings = Net income - Dividends 
= $85,958 - $14,242 
= $71,716

Therefore, the correct answer is choice C ($1,716).

The Following Balance Sheet and Income Statement Should Be Used