Which of the following statements about retained earnings is true?
A)Retained earnings is the amount of cash that the company has retained since its inception.
B)Retained earnings is the amount of creditors' claims on assets.
C)Retained earnings is increased when treasury stock is reissued at a price greater than its cost.
D)Retained earnings is decreased by cash dividends and stock dividends.

Question

Quizplus · Accepted Answer

Retained earnings is the amount of net earnings a company has kept since its inception. It represents the cumulative profits earned over the years that have not been distributed to shareholders. Cash dividends and stock dividends reduce the amount of retained earnings, while reissuing treasury stock at a price greater than its cost increases retained earnings. Option A is incorrect because retained earnings is not necessarily cash on hand. Option B is incorrect because creditors' claims are not part of retained earnings. Option C is incorrect because reissuing treasury stock at a price greater than its cost increases additional paid-in capital, not retained earnings.

Which of the Following Statements About Retained Earnings Is True