If retained earnings decreased during the year, and no dividends were paid, which of the following must be true?
A) Expenses for the year exceeded revenues.
B) The company did not have enough cash to pay its expenses.
C) Total stockholders' equity increased.
D) Liabilities increased during the year.

Question

Quizplus · Accepted Answer

Since retained earnings decreased and no dividends were paid, it suggests that the company had a net loss for the year. This means that expenses exceeded revenues, leading to a decrease in retained earnings. Therefore, option A is the best answer. The other options are not necessarily true based on the information provided. There is no information regarding the company's cash position or changes in liabilities during the year, and it's possible that other factors contributed to changes in stockholders' equity.

If Retained Earnings Decreased During the Year, and No Dividends