If a firm incurs a loss during a particular year, or if the firm paid out more in dividends than it had in net income, what happens to the retained earnings (RE) amount?
A) It increases.
B) It is unchanged.
C) It decreases.
D) It doubles.
E) It has to be returned to shareholders.

Question

Quizplus · Accepted Answer

Retained earnings decrease when a firm incurs a loss or pays out more in dividends than its net income, as these actions reduce the amount of earnings retained in the business.

If a Firm Incurs a Loss During a Particular Year