QUESTION 21 What occurs to stockholders\' equity when a company incurs a net los
ID: 2560689 • Letter: Q
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QUESTION 21 What occurs to stockholders' equity when a company incurs a net loss for the current period? O a. Paid-in capital is reduced with a debit amount. O b. Total retained earnings becomes restricted and dividends may not be distributed. OC. A deficit is reported for retained earnings on the balance sheet. d. Total retained earnings is reduced. QUESTION 22 What does the price-earnings ratio indicate? Oa. The percentage of earnings distributed to shareholders O b. The net income earned on each share of stock outstanding OC. The net income generated out of each sales dollar Od. Investors' assessments of a company's future earningsExplanation / Answer
Q 21.
Answer is D. Total retained earnings is reduced.
The explanation is as follows:
Net profit or loss earned during the year is transferred to Retained earnings balance for the purpose of making the Balance Sheet. If the company earned net income it will be added up in the balance of retained earnings and if the company incurs the losses it will reduce the balance of retained earnings, to be shown in the ending Balance sheet.
Q 22.
Answer is D. The investors assessment of Company's future earnings.
The explanation is as follows:
Price Earnings ratio = Market price/ Earnings per share = ...times
This ratio suggest that how much is investor willing to pay to the company for earning each $ of income of the company. The higher the PE ratio , the higher is the investor expectations of companys future earnings.
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