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Homework answers / question archive / 1) The Shoes Plaza expects sales of $428,600 next year

1) The Shoes Plaza expects sales of $428,600 next year

Accounting

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?

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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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