Week 5 Forecasting Retained Earnings

Forecasting Retained Earnings

The retained earnings account on the balance sheet represents the sum of all net income not paid out in the form of dividends to stockholders. At the end of 2016, Amalgamated Hat Rack’s retained earnings was $985,000 (see Amalgamated Hat Rack’s income statement on the lecture pages for Week 4). At the end of 2017, Amalgamated’s retained earnings will be the retained earnings at the end of 2016 plus that portion of 2017’s net income not paid out in dividends. For example:

Retained earnings at the end of 2016	$985,000
Forecasted Net Income for 2017	$372,523 *
Forecasted Dividends for 2017 (40% of income)	– 149,009
2017 Addition to Retained Earnings	$223,514

Retained earnings at the end of 2017 = $985,000 + $223,514 = $1,208,514

* This net income figure would have been produced from your 2017 forecast income statement.