If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to

Question

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When the board of directors authorizes a restriction of retained earnings for a future plant expansion, it reduces the amount of retained earnings available for dividend declarations. This is because the retained earnings are now earmarked for a specific purpose and cannot be used for other purposes, such as paying dividends. The action does not affect total assets or liabilities, or increase stockholders' equity.

If the Board of Directors Authorizes a $100,000 Restriction of Retained