RST Corporation\'s EBIT for 2016 amounted to P200,000. The Company\'s capital st
ID: 2784254 • Letter: R
Question
RST Corporation's EBIT for 2016 amounted to P200,000. The Company's capital structure consists of 100, 15%, P5,000 par value bonds; 1,000 12% preferred shares, P100 par value, and 2,000 P50 ordinary shares, P50 par value. Retained earnningsaccount has abalance of P125,000 as of December 31, 2016. Forty percent of earningsafter interest and taxes (corporate tax rate-32%) will be retained in the business..Question: Compute for the following; a)interest on bonds payment P____.b)Corporate Income taxes P______.c)Dividends on preferred shares P_____.d)Dividends on ordinary shares P______.e)Balance of retained earnings Account as of December 31, 2016 P______.
Explanation / Answer
a) Interest on bonds payment
100*5000*15% = 75000
b) Corporate Income taxes = (EBIT-Interest)* tax rate
(200,000-75000)*0.32 = 40,000
c) Dividends on preferred shares
1000*100*12%= 12,000
d) Dividends on ordinary shares
Total Dividend- dividend on preferred shares
(EBIT-Interest-Tax)*payout ratio-preferred dividend
(200,000-75,000-40000)*(1.04)-12000 = 39000
e) Balance of retained earnings account as of December 31, 2016
Beginning balance- 125000
Add-retained from current year income 34000
(200000-75000-40000)*0.4 = 34000
Balance of retained earnings amountas of December 31,2016= 159,000
Note- Kindly give a thumbs up if you are satisfied with the answer. It would help me a lot. thanks.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.