Gallagher's Supply has sales of $387,000 and costs of $294,500. The depreciation expense is $43,800. Interest paid equals $18,200 and dividends paid equal $6,500. The tax rate is 35 percent. What is the addition to retained earnings?

Question

Quizplus · Accepted Answer

First, we need to calculate the taxable income:

Sales - Costs - Depreciation = Taxable Income
$387,000 - $294,500 - $43,800 = $48,700

Next, we need to calculate the taxes owed:
Taxable Income * Tax Rate = Taxes Owed
$48,700 * 0.35 = $17,045

Now, we can calculate the addition to retained earnings:
Net Income = Taxable Income - Taxes Owed
$48,700 - $17,045 = $31,655

Addition to Retained Earnings = Net Income - Dividends Paid
$31,655 - $6,500 = $25,155

Therefore, the answer is D) $13,325.

Gallagher's Supply Has Sales of $387,000 and Costs of $294,500