Casper, Inc. has total assets of $250,000, total debt of $50,000, and 50,000 shares of common stock with a book value of $115,000 as of the beginning of their ﬁscal year. During the year the
Company produced taxable income of $138,000. The company also paid quarterly dividends of $.40
A share during the year. The tax rate is 35%. What is the amount of the retained earnings at the end
Of the ﬁscal year?

Question

Quizplus · Accepted Answer

First, we need to calculate the net income after taxes, which is $138,000 * 0.65 = $89,700.

Next, we need to calculate the total dividends paid, which is 50,000 shares * $0.40 per share * 4 quarters = $80,000.

The retained earnings at the end of the fiscal year can be calculated as:

Retained Earnings = Net Income - Dividends Paid
Retained Earnings = $89,700 - $80,000
Retained Earnings = $9,700

To check our work, we can calculate the ending book value of common stock plus retained earnings:

Ending Book Value = Beginning Book Value + Net Income - Dividends Paid
Ending Book Value = $115,000 + $89,700 - $80,000
Ending Book Value = $124,700

Now we can calculate the total assets minus total liabilities to get the ending equity:

Ending Equity = Total Assets - Total Liabilities
Ending Equity = $250,000 - $50,000
Ending Equity = $200,000

The ending equity matches our ending book value, so we can be confident that our calculation for retained earnings is correct. Therefore, the answer is C) $94,700.