You have been given the following information for Halle\'s Holiday Store Corp. for the year 2013: Net sales = $50,000,000; Cost of goods sold = $35,000,000; Addition to retained earnings = $2,000,000; Dividends paid to preferred and common stockholders = $3,000,000; Interest expense = $3,000,000. The firm\'s tax rate is 30 percent. In 2014, net sales are expected to increase by $5 million, cost of goods sold is expected to be 65 percent of net sales, expensed depreciation is expected to be the same as in 2013, interest expense is expected to be $2,500,000, the tax rate is expected to be 30 percent of EBT, and dividends paid to preferred and common stockholders will not change. What is the addition to retained earnings expected in 2014? Solution Halle\'s Holiday Store Corp. Finacial Information 2013 Details Amt $ Sales        50,000,000 Cost of Goods Sold        35,000,000 s Gross Profit        15,000,000 r Depreciation Expenses=s-p-q=           4,857,143 q Interest Expense           3,000,000 p EBT =o/0.70           7,142,857 Tax @30%           2,142,857 o PAT =m+n=           5,000,000 m Common & Preference Dividend           3,000,000 n Retained Earning Addition           2,000,000 Halle\'s Holiday Store Corp. Finacial Information -Projected 2014 Details Amt $ Sales        55,000,000 Cost of Goods Sold        35,750,000 Gross Profit        19,250,000 Depreciation Expense           4,857,143 Interest Expense           2,500,000 EBT          11,892,857 Tax @30%           3,567,857 PAT             8,325,000 Common & Preference Dividend           3,000,000 Assumed amountwise the dividend same as 2013 Retained Earning Addition in 2014 $      5,325,000 .

1. You have been given the following information for Halle's Holiday Store Corp. for the year
2013: Net sales = $50,000,000; Cost of goods sold = $35,000,000; Addition to retained earnings
= $2,000,000; Dividends paid to preferred and common stockholders = $3,000,000; Interest
expense = $3,000,000. The firm's tax rate is 30 percent. In 2014, net sales are expected to
increase by $5 million, cost of goods sold is expected to be 65 percent of net sales, expensed
depreciation is expected to be the same as in 2013, interest expense is expected to be $2,500,000,
the tax rate is expected to be 30 percent of EBT, and dividends paid to preferred and common
stockholders will not change. What is the addition to retained earnings expected in 2014?
Solution
Halle's Holiday Store Corp. Finacial Information 2013 Details Amt $ Sales      Â
50,000,000 Cost of Goods Sold       35,000,000 s Gross Profit      Â
15,000,000 r Depreciation Expenses=s-p-q= Â Â Â Â Â Â Â Â Â 4,857,143 q Interest Expense
         3,000,000 p EBT =o/0.70          7,142,857 Tax @30%
         2,142,857 o PAT =m+n=          5,000,000 m Common &
Preference Dividend          3,000,000 n Retained Earning Addition
         2,000,000 Halle's Holiday Store Corp. Finacial Information -Projected
2014 Details Amt $ Sales       55,000,000 Cost of Goods Sold      Â
35,750,000 Gross Profit       19,250,000 Depreciation Expense         Â
4,857,143 Interest Expense          2,500,000 EBT       Â
11,892,857 Tax @30% Â Â Â Â Â Â Â Â Â 3,567,857 PATÂ Â Â Â Â Â Â Â Â Â Â
8,325,000 Common & Preference Dividend          3,000,000 Assumed
amountwise the dividend same as 2013 Retained Earning Addition in 2014 $Â Â Â Â Â
5,325,000