If the Retained Earnings Account Increases from the Beginning of the Year

question 5

Multiple Choice

If the retained earnings account increases from the beginning of the year to the end of the year, then

• A) net income is less than dividends.
• B) net loss is less than dividends.
• C) the company must have sold shares.
• D) net income is greater than dividends.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows, discounted at a specified rate of return.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return or discount rate.

Discounting

The process of determining the present value of future cash flows by applying a discount rate.

Compounding

The process in which the value of an investment increases because the earnings on an investment, both capital, and interest, earn interest as time passes.