Question

The change in retained earnings is affected by which of the following?

(a) Net income and common stock.
(b) Net income and paid-in capital.
(c) Net income and payment of dividends.
(d) Payment of dividends and common stock.

Answer 1

The change in retained earnings is affected by net income and payment of dividends.

Step-by-step explanation:

The change in retained earnings is affected by (c) Net income and payment of dividends.

Net income represents the profit generated by a company during a specific period. When a company earns a profit, it can either distribute it to shareholders in the form of dividends or retain it for reinvestment in the business. Payment of dividends reduces the retained earnings, while net income increases the retained earnings.

For example, if a company has a net income of $100,000 and pays dividends of $20,000, the change in retained earnings will be an increase of $80,000 ($100,000 - $20,000).