Retained Earnings is an alias of
A. Indirect Income
B. Reserve and Surplus
C. Capital Account
The Correct Answer Is:
- B. Reserve and Surplus
Retained Earnings is an alias of Reserve and Surplus. A company’s retained earnings are aliases for its reserves, which are excess profits that have not yet been reported as income on its balance sheet. Instead of referring to these assets as surplus, retained earnings are used to refer to them as assets. Retained earnings refer to excess profits not yet reported as income on the balance sheet of a company in the context of financial reporting.
There is a common confusion between this usage and the concepts of reserve and surplus, which are different ways of referring to the same thing. In business, a reserve represents how much money a company has available after subtracting any necessary expenditures.The surplus of a business is the amount of money it created without factoring in the cost of running the business. It is the former rather than the latter that are considered retained earnings.
Retained earnings are:
(a) Not important at the time of determining dividends.
(b) Also known as cumulative earnings of the company after paying the dividends.
(c) Indication of a company’s liquidity position.
(d) Similar to cash in a bank.
Which of the following is not transferred to retained earnings at the end of the period?
C. Common stock.
Answer : C. Common stock.
In a balance sheet, the sum of retained earnings and common stock are known as:
(a) Common perpetuity
(b) Common equity
(c) Due equity
(d) Preferred equity
Which of the following does not affect retained earnings?
a. Net income for the period
b. Dividends declared for common shareholders
c. Repayment of the principal of a loan
d. All of the above affect retained earnings
Answer: c. Repayment of the principal of a loan
Which of the following is true?
(a) Retained Earnings are cheaper than External Equity
(b) Retained Earnings are costlier than External Equity
(c) Equity Retained earnings are cost free
(d) External Equity is cheaper than Internal Equity
A restriction appropriation of retained earnings
a. decreases total retained earnings
b. increases total retained earnings
c. decreases total assets
d. has no effect on total retained earnings
Answer: d. has no effect on total retained earnings
This is considered as the most expensive source of funds
(a) Retained Earnings
(b) New Debts
(c) New Preference Shares
(d) New Equity Shares
A property dividend should be recorded in retained earnings at the property’s
A. Fair value at date of declaration.
B. Fair value at date of issuance (payment).
C. Carrying amount at date of declaration.
D. Carrying amount at date of issuance.
Answer: A. Fair value at date of declaration.
The dividend-payout ratio is equal to
(a) Dividends per share divided by current price per share.
(b) Dividends per share divided by par value per share.
(c) Dividends per share divided by earnings per share.
(d) The dividend yield plus the capital gains yield.
The cost of new common stock financing is higher than the cost of retained earnings due to
A. flotation costs and commission costs
B. flotation costs and overpricing
C. commission costs and overpricing
D. flotation costs and underpricing
Answer: D. flotation costs and underpricing
For a company making profits, which of the following statements is likely to be true?
a) Retained earnings at the year end will be greater than retained profits at the beginning of the year.
b) Retained earnings at the year end will be greater than shareholders’ equity.
c) The profit for the year will be greater than the gross profit.
d) The operating profit will be less than the profit for the year.
A financial document indicating the success or failure of a business trading over a time period is known as?
(a) Retained earnings statement
(b) Income statement
(c) Bank statement
(d) Cash flow statement
Decrease in retained earnings can be explained by which of the following factors?
(a) Investments by stockholders
(c) Net loss
(d) Net income
The Retained Earnings account comprises:
(a) The earnings of the corporation for the current year.
(b) Cash reinvested in the business by shareholders.
(c) The cumulative earnings less dividends since the inception of the corporation.
(d) Cash retained in the business.Answer: c
Among the following options which one is false with regard to appropriations of retained earnings?
(a) They require setting aside a reserve of cash for the appropriations.
(b) They may be made at the discretion of the board of directors.
(c) They will restrict the amount of possible cash dividends.
(d) They may be required because of contractual obligations.
On a balance sheet retained earnings are not unspent cash because
A) they have been paid out to common stockholders.
B) they have an arbitrarily assigned value.
C) they are always changing.
D) they have been used to finance the firm’s assets.
Answer: D) they have been used to finance the firm’s assets.