# Applying Financial Statement Relations to Compute Dividends We use the **retained earnings equation** for each year: \[ \text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends} - \text{Share Repurchases} + \text{Other} \] Let's fill in the missing amounts step by step. --- ## Step 1: FY2 – Find Net Income (Answer 1) ### Given: - **Beginning Balance (FY1 end):** $18,490 - **Dividends:** $(1,344)$ - **Share Repurchases:** $(1,922)$ - **Other:** $(6)$ - **Ending Balance (FY2 end):** $18,036 ### Plug in values: \[ 18,036 = 18,490 + \text{Net Income} - 1,344 - 1,922 - 6 \] \[ 18,036 = 18,490 + \text{Net Income} - 3,272 \] \[ 18,036 = (18,490 - 3,272) + \text{Net Income} \] \[ 18,036 = 15,218 + \text{Net Income} \] \[ \text{Net Income} = 18,036 - 15,218 = 2,818 \] **Answer 1:** Net Income for FY2 = **$2,818 million** --- ## Step 2: FY3 – Find Dividends (Answer 2) and Share Repurchases (Answer 3) ### For FY3, first find Dividends (Answer 2): #### Given: - **Beginning Balance (FY2 end):** $18,036 - **Net Income:** $4,207 - **Dividends:** unknown (let's call it $D$) - **Share Repurchases:** $(4,579)$ - **Other:** $(4)$ - **Ending Balance (FY3 end):** $16,220 #### Plug in values: \[ 16,220 = 18,036 + 4,207 - D - 4,579 - 4 \] \[ 16,220 = (18,036 + 4,207) - D - 4,579 - 4 \] \[ 16,220 = 22,243 - D - 4,583 \] \[ 16,220 = (22,243 - 4,583) - D \] \[ 16,220 = 17,660 - D \] \[ D = 17,660 - 16,220 = 1,440 \] **Answer 2:** Dividends for FY3 = **$1,440 million** --- ### Now, FY4 – Find Share Repurchases (Answer 3): #### Given: - **Beginning Balance (FY3 end):** $16,220 - **Net Income:** $4,578 - **Dividends:** $(1,634)$ - **Share Repurchases:** unknown (let's call it $SR$) - **Other:** $(4)$ - **Ending Balance (FY4 end):** $14,976 #### Plug in values: \[ 14,976 = 16,220 + 4,578 - 1,634 - SR - 4 \] \[ 14,976 = (16,220 + 4,578) - 1,634 - SR - 4 \] \[ 14,976 = 20,798 - 1,634 - 4 - SR \] \[ 14,976 = (20,798 - 1,638) - SR \] \[ 14,976 = 19,160 - SR \] \[ SR = 19,160 - 14,976 = 4,184 \] **Answer 3:** Share Repurchases for FY4 = **$4,184 million** --- # Final Answers | Year | Net Income | Dividends on Common Stock | Share Repurchases | |---------------|------------|--------------------------|-------------------| | FY2 | $2,818$ | $(1,344)$ | $(1,922)$ | | FY3 | $4,207$ | $(1,440)$ | $(4,579)$ | | FY4 | $4,578$ | $(1,634)$ | $(4,184)$ | - **Answer 1 (FY2 Net Income):** $2,818 million - **Answer 2 (FY3 Dividends):** $1,440 million - **Answer 3 (FY4 Share Repurchases):** $4,184 million --- **Explanation:** In each step, we used the retained earnings formula to solve for the missing value by plugging in all known amounts and rearranging the equation. This method ensures each component is accounted for and the changes in retained earnings are fully explained.