Consider the following income statement for the Heir Jordan Corporation HEIR JOR

Question

Consider the following income statement for the Heir Jordan Corporation HEIR JORDAN CORPORATION Income Statement Sales Costs $48,500 34,500 Taxable income Taxes (35%) $14,000 4,900 Net income $ 9,100 Dividends Addition to retained earnings $ 2,900 6,200 The projected sales growth rate is 12 percent. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. (Input all amounts as positive values. Do not round intermediate calculations.) HEIR JORDAN CORPORATION Pro Forma Income Statement Sales Costs 54320 38640 15680 5488 Taxable income laxes Net income 10192 What is the projected addition to retained earnings? (Do not round intermediate calculations.) Addition to retained earnings

Explanation / Answer

Dividend payout ratio=Dividend payout /Net income

=(2900/9100)=0.318681318

Hence Dividend payout =$10192*0.318681318

=$3248

Hence addiiton to retained earnings=(10192-3248)=$6944.

Sales(48500*1.12) $54320 Costs(34500*1.12) $38640 Taxable income $15680 Taxes(15680*35%) $5488 Net income $10192.

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