A Company Had Net Income of $4,500 Last Year on Sales

question 43

Multiple Choice

A company had net income of $4,500 last year on sales of $53,000. Sales are expected to increase by 11% next year and the dividend payout ratio is 40%. This firm uses the percentage of sales approach when compiling pro forma statements. What amount will expect to be added to retained earnings next year?

• A) $1,937
• B) $1,609
• C) $2,255
• D) $3,098
• E) $2,997

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Definitions:

Cash Dividends

Payments made by a corporation to its shareholders from the company's profits.

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee but does not control it.

Statement of Cash Flows

A financial report summarizing the amount of cash and cash equivalents entering and leaving a company.