Financial Reporting of Net Earnings and Retained Earnings

question 8

Essay

Financial reporting of net earnings and retained earnings.
The 2009 annual report of Kirtland Products disclosed net earnings of approximately $87 million for the fiscal year ending March 31, 2009, and retained earnings of approximately $485 million as of March 31, 2009.
(a) Which financial statement shows computation of the net earnings?
(b) Which financial statement includes the retained earnings figure of $485 million?
(c) Explain why Kirtland reports $87 million as net earnings, but a much larger amount, $485 million, as retained earnings.

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Definitions:

Long-Term Debt

Borrowings that are due to be repaid more than one year from the date of the financial statement.

Dividend Payout

A portion of a company's earnings that is distributed to shareholders.

External Financing Needed

The additional funding a firm requires to finance its spending plans, such as investments in fixed assets or increases in working capital, beyond what can be funded by internal sources.

Dividend Payout Ratio

A metric indicating the proportion of a company's net profits paid out to its shareholders as dividends.