GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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cost of debt capital
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cost of equity capital
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cost of retained earnings
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cost of preference share capital
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Detailed explanation-1: -For instance, let’s say a company has reported a net income of $100, 000 in 2021 and paid $40, 000 of annual dividends. In our scenario, the retention ratio is 60%, which was calculated using the following formula: Retention Ratio = ($100k Net Income – $40k Dividends Paid) ÷ $100k Net Income. Retention Ratio = 60%
Detailed explanation-2: -If you need to reduce your stated retained earnings, then you debit the earnings. Typically you would not change the amount recorded in your retained earnings unless you are adjusting a previous accounting error. Adjustments to retained earnings are made by first calculating the amount that needs adjustment.
Detailed explanation-3: -Find the common stock line item in your balance sheet. If the only two items in your stockholder equity are common stock and retained earnings, take the total stockholder equity and subtract the common stock line item figure. The difference is retained earnings.