Question

After earning $50 million in net income, Marshall Manufacturing distributed $15 million in dividends to their stockholders. Marshall's board of directors decided to invest the remaining $35 million back into the business. This $35 million reinvestment of profits represents:
a. a trust fund earningb. retained earningsc. preferred capitald. mutual funds

Answer 1

Answer:

The correct answer is letter "B": retained earnings.

Explanation:

Retained earnings are the portion of the companies net earnings that it does not payout to shareholders as dividends. The company keeps this money and reinvests it in the business or uses it to pay out part of the company's debt. The retained earnings are reported in the Balance Sheet in the section of shareholder's equity. The formula to calculate the retained earnings is:

RE = Net Income (or Loss) − C − S

where:

• C=Cash dividends
• S=Stock dividends