Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Retained Earnings

Financial Accounting

12. Stockholders' Equity

Retained Earnings

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Multiple Choice

Which of the following best describes retained earnings?

The amount of dividends declared during the year.

The total amount of cash held by a corporation at year-end.

The value of shares issued by a corporation to its stockholders.

An amount earned by a corporation and not yet distributed to stockholders.

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Verified step by step guidance

Understand the concept of retained earnings: Retained earnings represent the cumulative amount of net income earned by a corporation that has not been distributed to stockholders as dividends. It is essentially the portion of profits kept within the company for reinvestment or to strengthen its financial position.

Clarify why retained earnings are not dividends: Dividends are the portion of earnings distributed to stockholders, whereas retained earnings are the portion of earnings retained by the company. Retained earnings are calculated after dividends are subtracted from net income.

Clarify why retained earnings are not cash: Retained earnings are not the same as cash held by the corporation. Retained earnings are an accounting measure that reflects accumulated profits, which may be reinvested in assets, operations, or other areas, rather than being held as cash.

Clarify why retained earnings are not related to shares issued: Shares issued represent equity raised by the corporation from stockholders, not the earnings generated by the corporation. Retained earnings are derived from the company's operations and profitability, not from issuing shares.

Conclude with the correct definition: Retained earnings are best described as the amount earned by a corporation and not yet distributed to stockholders, aligning with the correct answer provided in the problem.