A security analyst obtained the following information from Prestopino Products\'

ID: 2612807 • Letter: A

Question

A security analyst obtained the following information from Prestopino Products' financial statements:

On the basis of this information, what could have caused the reduction in retained earnings?

Prestopino had losses in the years before 2011.

Prestopino's paid dividends despite zero net income.

Prestopino reduced its net fixed assets in 2012 compared to 2011.

Prestopino's borrowed more money in 2012.

Prestopino's converted some of its retained earnings into cash.

Retained earnings on its balance sheet at the end of 2011 were $700,000, but retained earnings at the end of 2012 had declined to $320,000.

The company did not buy any shares back.

The company's depreciation expense is its only non-cash expense; it has no amortization charges.

The company has no non-cash revenues.

The company's net income for 2012 was exactly zero dollars.

correct option is "B" -Prestopino's paid dividend despite zero net income

Dividend is paid out of retained earnings ,so when dividend is paid ,the balance of retained earnings is reduced .

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