XYZ Company had a net income of $40 million in 2015. The ﬁrm paid no dividends. If there were no further changes to the stockholders' equity accounts, then ____________ by $40 million.
A) Total debt must have increased.
B) Retained earnings must have increased
C) Total shareholders' equity must have decreased
D) Common stock must have decreased
E) The market value of the ﬁrm's stock must have decreased

Question

Quizplus · Accepted Answer

Since the firm paid no dividends, the entire net income of $40 million would be added to the retained earnings account, increasing it by the same amount. Therefore, option B - Retained earnings must have increased - is the correct choice. None of the other options are valid conclusions based on the information provided.

XYZ Company Had a Net Income of $40 Million in 2015