Retained earnings are occasionally restricted
A)to set aside cash for dividends.
B)to keep the legal capital associated with share capital intact.
C)due to contractual loan restrictions.
D)if preferred dividends are in arrears.

Question

Quizplus · Accepted Answer

Retained earnings can be restricted due to contractual loan restrictions, where lenders may require a company to retain a certain amount of earnings in the business as a condition for the loan, to ensure the company's financial stability and its ability to repay the loan.

Retained Earnings Are Occasionally Restricted