Question

Intel reports retained earnings at the end of fiscal 2016 of $40,747 million and retained earnings at the end of fiscal 2015 of $37,614 million. The company reported dividends of $4,925 million and other transactions with shareholders that reduced retained earnings during the year by $2,258 million. How much net income did the firm report in fiscal 2016? Select one:
a. $3,133 million net income
b. $3,133 million net loss
c. $10,316 million net income
d. $10,316 million net loss
e. None of the above

Answer 1

Answer: c. The firm reported a $10,316 million income in fiscal 2016.

We arrive at the answer as follows:

We use the following formula for Retained Earnings (RE):

$RE_{2016} = RE_{2015} + Additions to RE in 2016 - Transactions that reduce RE$

Rearranging we get,

$RE_{2016} - RE_{2015} + Transactions that reduce RE = Additions to RE in 2016$

Then we use the following formula to arrive at Net Income:

$Net Income = Dividends + RE$

          Retained Earnings at the end of 2016            $40,747 million

less:  Retained Earnings at the end of 2015          - $37,614 million

                                                                                         $3,133 million

add: Transactions that reduced retained earnings       $2,258 million

        Additions to retained earnings in 2016                  $5,391 million        

Add: Dividends paid to share holders                               $4,925 million    

        Net Income                                                                $10,316 million