Question

Which of the following is least likely to affect the retained earnings balance?

1) Net income
2) Dividends
3) Issuance of common stock
4) Depreciation expense

Answer 1

Issuing common stock is least likely to affect the retained earnings balance, as it involves acquiring capital for shares, not profit distribution.

Step-by-step explanation:

The retained earnings balance is a financial metric that reflects the cumulative amount of net income that a company keeps, after paying out dividends, since its inception. Of the options provided, the issuance of common stock is least likely to affect the retained earnings balance. Net income increases retained earnings, dividends paid out decrease it, and depreciation expense affects net income, which in turn affects retained earnings. However, issuing common stock affects the equity section of the balance sheet under shareholders' equity but does not directly affect retained earnings, as it's a transaction that involves the receipt of capital in exchange for shares, not the distribution of profits.