Handy Man Services, Inc., has net income of $555,000. What is the addition to retained earnings if the dividend payout ratio is 42%?

Question

Quizplus · Accepted Answer

The dividend payout ratio is the percentage of net income paid out as dividends. Thus, the amount of dividends paid out by Handy Man Services, Inc. can be calculated as:
Dividends = Net Income x Dividend Payout Ratio
Dividends = $555,000 x 42% = $233,100
The addition to retained earnings can be found by subtracting the dividends paid out from the net income:
Retained Earnings = Net Income - Dividends
Retained Earnings = $555,000 - $233,100 = $321,900
Therefore, the answer is D) $321,900.