A deficit occurs when a company's
A)retained earnings are less than it's common stock
B)dividends distributed are greater than comprehensive income
C)dividends and cumulative losses are greater than cumulative net income
D)retained earnings are less than assets minus liabilities

Question

Quizplus · Accepted Answer

A deficit occurs when a company's accumulated losses from previous years exceed its cumulative net income. In other words, the company has distributed more dividends than its earnings can support, resulting in a negative retained earnings balance. This is reflected in the statement of changes in shareholder's equity as a deficit in retained earnings. This choice C correctly describes this phenomenon.

A Deficit Occurs When a Company's