Cumberland industries' most recent sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and cumberland paid 25% of its net income out in dividends. given this information, construct cumberland's income statement. also calculate total dividends and the addition to retained earnings.

The total dividends and the addition to retained earnings is $7,950,000 and $2,3850,000 respectively.

Explanation:

Income statement : It is a statement which shows an income after deducting all expenses, taxes, interest and depreciation.

where,

Operating costs = 85% of sales

                           = 85% × $455,000,000

                          = $386,750,000

Depreciation = 10% of net fixed assets

                      = 10% × $67,000,000

                      = $6,700,000.00

Tax rate is applied on remaining balance

And,

EBITDA = Earning before interest, tax, depreciation and amortization

EBIT = Earning before interest and tax

EBT = Earning Before tax

Kindly find the attachment sheet in which the income statement is constructed.

The dividend is = 25 % of net income

                          = 25% × $31,800,000

                          = $7,950,000

Retained earning = Net income - dividend

                             = 31,800,000 - $7,950,000

                             = $2,3850,000

Hence, the total dividends and the addition to retained earnings is $7,950,000 and $2,3850,000 respectively.

the answer is "b.the increased supply will create a surplus. "

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