Twine Enterprises reported sales of $3 million and net income of $400,000 for 2010.The retained earnings balance at the end of 2010 is $7 million.Twine Enterprises has a dividend payout ratio of 30%.If sales are expected to increase by 25% next year,what will be the projected balance in retained earnings using the percent of sales method?

Question

Quizplus · Accepted Answer

The projected sales for next year are $3 million * 1.25 = $3.75 million. The projected net income is $3.75 million * 0.1333 = $500,000. The projected dividends are $500,000 * 0.30 = $150,000. The projected retained earnings are $7 million + $500,000 - $150,000 = $7,350,000.

Twine Enterprises Reported Sales of $3 Million and Net Income