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12 November, 13:18

Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out $16,500 in dividends. What is the addition to retained earnings? a. $36,909 b. $47,615 c. $44,141 d. $47,208 e. $42,438

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  1. 12 November, 13:30
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    e. $42,438

    Explanation:

    The computation of the retained earning is shown below:

    Earning after tax = Sales - cost - depreciation expense - interest expense - income tax expense

    = $318,400 - $199,400 - $28,600 - $1,100 - $30362

    = $58,938

    The income tax expense equal to

    = (Sales - cost - depreciation expense - interest expense) * tax rate

    = ($318,400 - $199,400 - $28,600 - $1,100) * 0.34

    = $30362

    Now the retained earning equal to

    = Earning after tax - dividend paid

    = $58,938 - $16,500

    = $42,438
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