Last year, a firm earned $67,800 in net income on sales of $934,600.Total assets increased by $62,000 and total equity increased by $43,500 for the year.No new equity was issued and no shares were repurchased.What is the retention ratio?
A)29.62 percent
B)35.84 percent
C)56.25 percent
D)70.38 percent
E)64.16 percent

Question

Quizplus · Accepted Answer

The retention ratio is calculated as (Net Income - Dividends) / Net Income. Since no new equity was issued and no shares were repurchased, the increase in equity ($43,500) represents retained earnings. Thus, the retention ratio is $43,500 / $67,800 = 0.6416 or 64.16 percent.

Last Year, a Firm Earned $67,800 in Net Income on Sales