question archive Ribbon Industries reported sales of $3 million and net income of $400,000 for 2010
Ribbon Industries reported sales of $3 million and net income of $400,000 for 2010
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Ribbon Industries reported sales of $3 million and net income of $400,000 for 2010. The retained earnings balance at the end of 2012 is $7 million. Ribbon Industries 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?
a. $7,280,000
b. $6,720,000
c. $7,350,000
d. $8,750,000
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Answer:
| Sales for next year = $3 million * 125% = $3.75 million | ||||||||||||||
| Net Income for next year = $400000 * 125% = $500000 | ||||||||||||||
| Dividend paid for 2012 = 30% * $500000 = $150000 | ||||||||||||||
| Projected balance in retained earnings = beginning balance + Net Income - Dividend paid = $7000000 + $500000 - $150000 = $7350000 | ||||||||||||||
| The answer is Option c. | ||||||||||||||
