Multiple choice

The relationship between cash dividends and retained earnings is

  1. direct

  2. positive

  3. reciprocal

  4. none of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The relation between cash dividends and retained earnings is reciprocal. The retained earning is the part of profits which is not distributed as profits and is kept by the company. If the company decides to distribute major part of profits as dividend in the form of cash, then obviously it would have less earnings left to be retained or kept and vice-versa.

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