A company had the following during the year: cost of goods sold = $120,000, investment income = $1,800, sales = $235,000, operating expense = $53,000, interest expense = $4,800, dividends = $8,400, tax rate = 35 percent, and 20,000 shares outstanding. What was the addition to retained earnings?

Question

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To calculate the addition to retained earnings, we first need to determine the net income and then subtract the dividends. Net income is calculated as follows:1. Gross Profit = Sales - Cost of Goods Sold = $235,000 - $120,000 = $115,0002. Operating Income = Gross Profit - Operating Expense = $115,000 - $53,000 = $62,0003. Earnings Before Tax (EBT) = Operating Income + Investment Income - Interest Expense = $62,000 + $1,800 - $4,800 = $59,0004. Net Income = EBT - Tax (35% of EBT) = $59,000 - ($59,000 * 35%) = $59,000 - $20,650 = $38,350Finally, the addition to retained earnings is calculated by subtracting dividends from the net income:Addition to Retained Earnings = Net Income - Dividends = $38,350 - $8,400 = $29,950.

A Company Had the Following During the Year: Cost of Goods