Sidewinder, Inc., has sales of $634,000, costs of $328,000, depreciation expense of $73,000, interest expense of $38,000, and a tax rate of 21 percent. The firm paid out $68,000 in cash dividends. What is the addition to retained earnings? (Do not round intermediate calculations and round your answer to the nearest whole number, e. g., 32.)

$86,050

Explanation:

Data provided in the question:

Sales = $634,000

Costs = $328,000

Depreciation expense = $73,000

Interest expense = $38,000

Tax rate = 21 percent

Dividends paid = $68,000

Now,

EBIT = Sales - Cost - Depreciation

= $634,000 - $328,000 - $73,000

= $233,000

EBT = EBIT - Interest

= $233,000 -  $38,000

= $195,000

Net income = EBT - Tax

= $195,000 - (0.21 × $195,000)

= $195,000 - $40,950

= $154,050

Addition to retained earnings = Net income - Dividends

= $154,050 - $68,000

= $86,050

b is the correct answer