Addition to retained earnings: Hilton Corp. has revenues of $1,214,800 and costs of $816,355, and pays a tax rate of 32 percent. If the firm pays out 50 percent of its earnings as dividends every year, what is the amount of retained earnings?

Question

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First, calculate the earnings before tax: $1,214,800 - $816,355 = $398,445. Then, calculate the tax: $398,445 * 32% = $127,502.40. Subtract the tax from earnings before tax to get net income: $398,445 - $127,502.40 = $270,942.60. Since 50% is paid as dividends, the retained earnings are 50% of net income: $270,942.60 * 50% = $135,471.30.

Addition to Retained Earnings: Hilton Corp