Retained Earnings: A. is decreased by a stock split. B. represents an amount of cash available...

Retained Earnings:

A. is decreased by a stock split.

B. represents an amount of cash available to pay shareholders.

C. represents the total amount of net income earned by the company during its existence.

D. can be subject to appropriation by a corporation's directors to limit dividends.

Expert Solution

Retained Earnings refer to the percentage of net earnings which are not paid out as dividends rather these are retained by the company to be ploughed back or reinvested in the company for expansion or for meeting any unforseen circumstances. These (d) can be subject to appropriation by a company's directors to limit dividends.

Appropriated retained earnings are specifically not used to pay dividends. They can be used for any other purpose of importance for the company such as investment for expansion, research and development, infrastructure development etc....Thus a corporation's directors can limit dividends payment by appropriating retained earnings for the given purposes.

A stock split refers to the company dividing its existing shares into multiple shares without changing the total outstanding stock capital of the company. Stock split has nothing to do with retained earnings and hence retained earnings is not affected by a stock split. Hence option (a) is false.

Retained earnings represents the amount of net earnings left after payment of dividends to stockholders. So, option (b) is false.

Retained earnings represent a percentage of net income left after payment of dividends. Hence, option (c) is also false.

ekkarill92 answered 2 years ago

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