Final answer:
The reason for negative retained earnings can be losses in previous years, dividends exceeding earnings, or expense mismanagement.
Step-by-step explanation:
The reason for negative retained earnings at the end of 2017 for Potter's company could be due to several factors:
- Losses in previous years: If the company incurred losses in the past, it can lead to negative retained earnings.
- Dividends exceeding earnings: If the company distributed dividends to shareholders that exceed its earnings, it can result in negative retained earnings.
- Expense mismanagement: Poor expense management or high operating costs can also contribute to negative retained earnings.
It's important for the company to address the underlying causes and take corrective measures to improve its financial position.