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

The retention ratio is calculated as (Net Income - Dividends) / Net Income. First, calculate Net Income: Sales - COGS - Selling/Admin Expenses - Interest Expense = $900,000 - $625,000 - $100,000 - $30,000 = $145,000. Tax = 30% of $145,000 = $43,500. Net Income = $145,000 - $43,500 = $101,500. Retained Earnings = $101,500 - $35,525 = $65,975. Retention Ratio = $65,975 / $101,500 = 65%.

Calculate Retention Ratio Given the Following Information: Cash Dividends Paid