After earning $30 million in net income,Rolatrim Industries distributed $5 million in dividends to their stockholders.The board of directors of the firm decided to invest the remaining $25 million back into the business.This $25 million reinvestment of profits represents:
A)trust fund.
B)mutual funds.
C)retained earnings.
D)preferred capital.

Question

Quizplus · Accepted Answer

Retained earnings refer to the portion of a company's net income that is reinvested back into the business instead of being distributed as dividends to shareholders. In this scenario, Rolatrim Industries reinvested $25 million of their $30 million net income, which represents retained earnings. Choice A, trust fund, does not apply as there is no mention of a trust being set up. Choice B, mutual funds, does not apply as the company is not investing in a pool of investments managed by a professional. Choice D, preferred capital, does not apply as this term refers to a specific type of financing that involves issuing securities to investors who have a higher claim to the company's assets and earnings compared to other investors.

After Earning $30 Million in Net Income,Rolatrim Industries Distributed $5