Which one of the following correctly expresses the clean surplus relationship?
A)The change in book value per share is equal to earnings per share minus dividends per share.
B)The change in retained earnings is equal to net income.
C)The change in market value per share is equal to the change in book value per share.
D)The change in market value per share is equal to earnings per share minus dividends per share.
E)The rate of change in book value per share is equal to the firm's discount rate.

Question

Quizplus · Accepted Answer

The clean surplus relationship states that the change in book value per share is equal to earnings per share minus dividends per share. This means that any increase or decrease in book value per share can be attributed to the company's earnings and dividends, and not to any other factors. Option B may be true but it doesn't uniquely express the clean surplus relationship. Option C and D are incorrect because they refer to market value per share, which is not a part of the clean surplus relationship. Option E is also incorrect because the clean surplus relationship does not involve the firm's discount rate.

Which One of the Following Correctly Expresses the Clean Surplus