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Retained earnings equal total profits minus what?
AAll the operating expenses paid
BAll the income taxes paid
CAll the interest charges paid
DAll the dividends paid out
Answer & Solution
Correct answer: D. All the dividends paid out
1. Retained earnings are the amounts left over from profitable operations since the firm began.
2. They equal total profits minus all dividends paid to stockholders, dividends being distributions of profits.
3. Expenses, interest and taxes are already deducted in arriving at profit, so subtracting them again would double count.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.4 The Balance Sheet_
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