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 = $88; net income = $264.
A) $176
B) $245
C) $328
D) $402
E) $485

Question

Quizplus · Accepted Answer

If the company pays out a constant fraction of net income in the form of a cash dividend, we can use the formula:

Retained Earnings = Net Income – Cash Dividends

Plugging in the given numbers:
Retained Earnings = $264 – $88
Retained Earnings = $176

Therefore, the addition to retained earnings is $176, which is option A.

Assuming That a Company Has a Policy of Paying Out