Why Must a Corporation Have Sufficient Retained Earnings Before It

question 29

Essay

Why must a corporation have sufficient retained earnings before it may declare cash dividends?

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Definitions:

Equivalent Units

A conceptual unit used in cost accounting to represent the amount of work done on partially completed goods, allowing for the calculation of unit costs.

Finishing Department

A section in a manufacturing process where products are completed, processed further, or refined after initial production stages.

Equivalent Units

A term used in cost accounting to represent a portion of finished goods calculated by combining completed units and partially completed units.

Conversion Cost

The total cost of converting raw materials into finished products, combining both direct labor costs and manufacturing overhead.