An appropriation of retained earnings places a limit on the amount of dividends a corporation can declare.

Question

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When a corporation appropriates retained earnings, it sets aside a portion of its profits for specific purposes, such as a future capital expenditure or debt repayment. The appropriation reduces the amount of retained earnings available for distribution as dividends, thus placing a limit on the amount of dividends the corporation can declare.

An Appropriation of Retained Earnings Places a Limit on the Amount