Question

The corporation Tough TVs Corp. makes a profit in its first year of existence. The managers of the corporation decide to reinvest the profits. The reinvested profits are called: a. shareholder profits. b. dividends. c. public earnings. d. retained earnings.

Answer 1

Answer:

D. Retained earnings

Explanation:

Retained earnings refer to those profits that are not distributed back to the shareholders as dividends but rather are retained for a specific purpose which may include reinvesting the money back, debt payments, purchase of assets and so on. It also refers to the amount of profit remaining after dividends has been paid to shareholders. Retained earnings does not necessarily mean that there was surplus cash in an accounting year. It only identifies for what purpose is the product made been used for. In this case, since the managers decided to reinvest their profits the following year it is called retained earnings.