Question

After earning $30 million in net income, Rolatrim Industries distributed $5 million in dividends to their stockholders. The board of directors of the firm decided to invest the remaining $25 million back into the business. This $25 million reinvestment of profits represents: mutual funds. retained earnings. a trust fund. preferred capital.

Answer 1

retained earnings

Step-by-step explanation:

In simple words, Retained earnings refers to the amount from net profits left available to the company after the owners have taken out dividends. The determination to maintain the profits or disperse them to the owners is typically left mostly to administration of the company.

Although this is done by the declaration of income, the net benefit is still included both in the income statement as well as the cash flow statements. This are not paid to shareholders as dividends but are rather used for new funding back into the company..