If the board of directors authorizes a $250,000 restriction of retained earnings for a future plant expansion, the effect of this action is to
A)decrease total assets and total shareholders' equity.
B)increase shareholders' equity and to decrease total liabilities.
C)decrease total retained earnings and increase total liabilities.
D)reduce the amount of retained earnings available for dividend declarations.

Question

Quizplus · Accepted Answer

This action earmarks a portion of the company's retained earnings for a specific use (in this case, a future plant expansion), but it does not change the total amount of shareholders' equity or total assets. It simply reduces the portion of retained earnings that can be used for other purposes, such as paying dividends.

If the Board of Directors Authorizes a $250,000 Restriction of Retained