Draiman, Inc., has sales of $604,000, costs of $254,000, depreciation expense of $61,500, interest expense of $28,500, and a tax rate of 35 percent. The firm paid out $45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.) Required: What is the addition to retained earnings? Addition to retained earnings $ Explanation: The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income statement Sales $ 604,000 Costs 254,000 Depreciation 61,500 EBIT $ 288,500 Interest 28,500 Taxable income $ 260,000 Taxes (35%) 91,000 Net income $ 169,000 The dividends paid plus the addition to retained earnings must equal net income, so: Net income = Dividends + Addition to retained earnings Addition to retained earnings = $169,000 – 45,500 Addition to retained earnings = $123,500

Draiman, Inc., has sales of $604,000, costs of $254,000, depreciation expense of $61,500, interest expense of $28,500, and a tax rate of 35 percent. The firm paid out $45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

What is the addition to retained earnings?

Addition to retained earnings

$

Explanation:

The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income statement
Sales	$	604,000
Costs		254,000
Depreciation		61,500
EBIT	$	288,500
Interest		28,500
Taxable income	$	260,000
Taxes (35%)		91,000
Net income	$	169,000

The dividends paid plus the addition to retained earnings must equal net income, so:

Net income = Dividends + Addition to retained earnings

Addition to retained earnings = $169,000 – 45,500

Addition to retained earnings = $123,500