Winston Industries had sales of $843,800 and costs of $609,900. The company paid $38,200 in interest and $35,000 in dividends. The depreciation was $76,400. The firm has a combined tax rate of 24 percent. What was the addition to retained earnings for the year?

Question

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The addition to retained earnings can be calculated by first determining the net income and then subtracting the dividends paid. Net income is calculated as follows: 1. Earnings Before Interest and Taxes (EBIT) = Sales - Costs - Depreciation = $843,800 - $609,900 - $76,400 = $157,500.2. Earnings Before Taxes (EBT) = EBIT - Interest = $157,500 - $38,200 = $119,300.3. Net Income = EBT - Taxes = $119,300 - ($119,300 * 24%) = $119,300 - $28,632 = $90,668.Finally, the addition to retained earnings = Net Income - Dividends = $90,668 - $35,000 = $55,668.

Winston Industries Had Sales of $843,800 and Costs of $609,900