What statement will true/false be based on regarding retained earnings, according to Professor Arnosky?

The correct statement regarding retained earnings is that it is the total company earnings less dividend payments. Retained earnings represent the cumulative amount of net income that a company has retained, rather than distributed to shareholders as dividends. This amount is important because it provides insight into the company's ability to reinvest in the business, fund new projects, pay down debt, or distribute to shareholders in the future.

Retained earnings are calculated by taking total net income and subtracting any dividends that have been declared and paid out to shareholders. As time goes on, this figure will grow as long as the company continues to generate profits and manage its dividend policy appropriately. This aspect of retained earnings is crucial for understanding a company's long-term financial health and its reinvestment strategy.

Other statements regarding retained earnings do not fully capture its definition or function. For instance, the notion that it represents total income regardless of dividends oversimplifies the concept, as retained earnings take dividend payments into account. Similarly, stating that it includes only current year profits ignores the cumulative nature of retained earnings, which encompass all previous profits retained by the company. Lastly, asserting that it has no connection to dividends fails to recognize that dividends directly impact the amount retained within the business.