Asked by Sarahi Rivera on May 09, 2024
Verified
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.
Retained Earnings
The portion of a company's profit that is held back and not distributed to shareholders as dividends, to be reinvested in the business or used to pay off debt.
Contractual Loan Restrictions
Clauses in a loan agreement that limit the borrower's actions in certain ways to reduce the lender's risk.
Preferred Dividends
Payments made to preferred shareholders before any dividends are distributed to common shareholders, often at a fixed rate and with priority over common dividends.
- Comprehend the impact of retained earnings restrictions on financial statements.
- Analyze the impact of financial decisions on shareholders' equity.
Verified Answer
Learning Objectives
- Comprehend the impact of retained earnings restrictions on financial statements.
- Analyze the impact of financial decisions on shareholders' equity.
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