Final answer:
Appropriated retained earnings are set aside for specific purposes, while free retained earnings are available for dividend distribution.
Step-by-step explanation:
Retained earnings are the portion of a company's profits that is reinvested back into the business. Appropriated retained earnings are retained earnings that have been set aside for specific purposes, such as capital expenditures or debt repayment. These earnings are not available for distribution to shareholders as dividends.
In contrast, free retained earnings are the portion of retained earnings that is available for distribution as dividends to shareholders. They represent the amount of profits that remain after any appropriations have been made.
For example, a company may decide to appropriate a certain amount of its retained earnings to upgrade its technology infrastructure. This amount would be set aside and not available for dividend distribution. The remaining amount of retained earnings that are not appropriated would be considered free retained earnings and could be paid out as dividends to the company's shareholders.