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1) The Shoes Plaza expects sales of $428,600 next year
1) The Shoes Plaza expects sales of $428,600 next year. The profit margin is 5.2% and the firm has a 30% dividend payout ratio. What is the projected increase in retained earnings.
2)Silverman Co. owns 8,000 of the 20,000 outstanding shares of DeFano, Inc. common stock. During 2017, DeFano earns $100,000 and pays cash dividends of $80,000. If the beginning balance in the investment account was $200,000, the balance at December 31, 2017 should be?
Expert Solution
1) Computation of the projected increase in retained earnings:-
Profit margin = Net income / Sales
5.2% = Net income / $428,600
Net income = $428,600 * 5.2%
= $22,287.20
Dividend payout ratio = Dividend / Net income
30% = Dividend / $22,287.20
Dividend = $22,287.20 * 30%
= $6,686.16
Increase in retained earnings = Net income - Dividends
= $22,287.20 - $6,686.16
= $15,601.04
2) Computation of the balance at December 31, 2017:-
Ownership = 8,000 / 20,000
= 40%
Balance at December 31, 2017 = Beginning balance + ((Earnings - Cash dividends) * Ownership)
= $200,000 + (($100,000 - $80,000) * 40%)
= $200,000 + ($20,000 * 40%)
= $200,000 + $8,000
= $208,000
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