4. Gallagher's Supply has sales of $387,000 and costs of $294,500. The depreciation expense is $43,800. Interest paid equals $18,200 and dividends paid equal $6,500. The tax rate is 35 percent. What is the addition to retained earnings?
First, we need to calculate the net income before taxes by subtracting the costs, depreciation expense, and interest paid from the sales:
Net income before taxes = Sales - Costs - Depreciation Expense - Interest Paid
= $387,000 - $294,500 - $43,800 - $18,200
= $30,500
Next, we need to calculate the income tax expense by multiplying the net income before taxes by the tax rate:
Income tax expense = Net income before taxes * Tax rate
= $30,500 * 0.35
= $10,675
Then, we can calculate the net income after taxes by subtracting the income tax expense from the net income before taxes:
Net income after taxes = Net income before taxes - Income tax expense
= $30,500 - $10,675
= $19,825
Finally, we can calculate the addition to retained earnings by subtracting the dividends paid from the net income after taxes:
Addition to retained earnings = Net income after taxes - Dividends paid
= $19,825 - $6,500
= $13,325
Therefore, the addition to retained earnings is $13,325.