Question

A corporation has reported earnings per share of $1.00. If it pays a dividend of $.75 per share, the effect of the remaining $.25 will be to:________

A) increase retained earnings.
B) increase working capital.

Answer 1

A. Increase retained earnings

Step-by-step explanation:

The net income earned by a company in a particular year is always used for two purposes and treated in these ways- it is either paid out as dividends or retained in the business and transferred to the retained earning account or both. Thus, if out of $1.00 earnings per share, which is basically the net income earned per share, $0.75 is paid out as dividends per share, the remaining $0.25 is retained in the business and transferred to the retained earnings account.