Question

What is the result if the amount of net income for the year is less than the amount of the Dividends?

A. Retained Earnings decreases
B. Retained Earnings increases
C. Cash balance increases
D. Cash balance decreases
E. None of the above

Answer 1

If the amount of net income for the year is less than the amount of the Dividends, the result is that Retained Earnings decreases.

Step-by-step explanation:

If the amount of net income for the year is less than the amount of the Dividends, the result is that Retained Earnings decreases. Retained Earnings is the portion of net income that is not distributed as dividends and is instead reinvested back into the company. When net income is less than dividends, it means that the company has paid out more to shareholders than it has earned, resulting in a decrease in Retained Earnings.