CFA Practice Question

There are 86 practice questions for this study session.

CFA Practice Question

Which of the following statements about the statement of retained earnings is false?
A. It covers the same time period as the income statement, and provides a link between the income statement and the balance sheet.
B. It need not be prepared if a separate statement of stockholders' equity is prepared.
C. It shows whether a corporation has sufficient funds to pay a cash dividend.

User Contributed Comments 14

User Comment
shasha cash dividend is paid by R.E., so what's wrong with the answer D? wondering the answer should be A. R.E. is accumulated earnings from the start of business, not just covers for one fiscal year as income statement does.
shasha i forgot the actual payment for cash dividend NEEDS real cash! Also for A, it (the statement itself, not retained earnings) covers the same accounting period as income statement does. A does not meant retained earnings cover the same period as the net income does.
murli Cash Flow statement also provides a link between Income statement and Balance sheet!
mtcfa IV is incorrect because earnings may be recorded, but the company may have made all its sales on credit and therefore not generate a dollar of cash from operations.
jerylewis dividends can be paid by issuing new debt for ex
octavianus Shows funds available after dividend is paid, not whether they have the funds to pay a dividend.
cong C is wrong because one cannot tell from the statement of retained earnings how much cash is needed by the company.
mjs111 Just because a company has retained earnings equal to or greater than the expected dividend doesn't mean those retained earnings are in cash, ready for payout. Those retained earnings could have been converted into pp&e, used in an acquisition, etc. A few high-priced acquisitions could have converted a lot of those retained earnings into goodwill.
smit0745 dumbest question ever
czar Statement of retained earning is not the same as Net Income...it includes net incomes from previous periods which werent paid out as dividends.
bschmitt Thanks Shasha, that clears things up
weebe Companies may pay dividends even if retained earnings are zero or even if they make a loss, so C is false.
Michaelali The retained earnings formula subtracts dividend hence the final retained dividend does not show the dividend paid.
Michaelali The retained earnings formula subtracts dividends hence the final retained earnings value does not show dividend.Also the retained earnings are what the company reinvest in the business after paying dividends.so dividend is not part of retained earnings.
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