1) Indicate whether you agree with the primary post calculation. If you do not a

Question

1) Indicate whether you agree with the primary post calculation. If you do not agree, explain what the corrected numbers would be.

2) Why are taxable income and net income different?
3) Using the correct numbers, what is the Retained Earning Balance 12/31/17?

Sales Revenue Interest income Interest expense Dividends received Dividends paid Operating expenses (other than depr.) 550,000 Depreciation expense Retained Earnings, 1/01/17 $790,000 12,000 45,000 24,000 45,000 15,000 200,000 1. What is the taxable income for 2017? Sales Revenue (790,000)-(Operating expense (550,000)+Depreciation expense (15,000))Operating Income (225,000) Operating income (225,000) + Interest Income (12,000-Interest Expense ( 45,000) = 192,000 192,000 dollars in the taxable income for 2017 2. What is the tax liability for 2017? (Use tax chart in text) 22,250+0.39 (192,000-100,000)-58,130 dollars in tax liability ) What is net income for 2017 192,000 58,130 133,870 dollars in Net Income

Explanation / Answer

1. The taxable Income is calculated as follows

2. The Net Income is calculated as follows:

Net Income = Taxable Income *(1-tax rate) = 216,000*(1-0.39)= 131,760

3. Net Income = 131,760

Dividends paid = 45,000

Addition to retained earnings = Net Income - Dividends paid = 131,760 -45,000 = 86,760

Retained earnings balance on 12/31/2017 = 200,000 + 86,760 = 286,760

4. Adding back the depreciation to the net income will give the cash flow

Cash flow = Net Income + Depreciation

Cash flow = 131,760 +15,000 = 146,760

Sales Revenue 790000 Operating expenses -550000 EBITDA 240000 Depreciation -15000 EBIT 225000 Interest Expnese -45000 Interest Income 12000 Dividends Received 24000 Taxable Income 216000

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