Final answer:
Dividends are indeed closed out directly to retained earnings at year-end, after which the retained earnings reflect the net changes including net income and dividends distributed.
Step-by-step explanation:
The statement that dividends are closed out directly to retained earnings at year-end is true. In accounting, at the end of the fiscal year, a company's net income is closed to retained earnings in the equity section of the balance sheet. However, before this happens, if a company has declared dividends during the year, these dividends are also closed out to the retained earnings account, thus reducing the overall retained earnings. The process ensures that the retained earnings reflect all changes including profits earned and dividends paid out during the year.