Increases to Retained earnings result from:

Question

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Retained earnings are the portion of a company's profits that are not paid out as dividends to shareholders. Instead, they are retained by the company to reinvest in the business or pay off debt. Therefore, increases to retained earnings result from income that is not paid to shareholders (choice B). The sale of additional shares of stock (choice A) would result in an increase in common stock or additional paid-in capital, not retained earnings. An excess of assets over liabilities (choice C) would result in an increase to total equity, but not necessarily specifically to retained earnings. Market values that exceed book values (choice D) may result in unrealized gains, but these gains would not necessarily be classified as retained earnings.

Increases to Retained Earnings Result From