Question

Which one of the following is a component of profit?

• A. Dividend
• B. Undistributed profit
• C. Corporate profit tax
• D. All of these

Hint:

Think of total corporate profit as a pie that is sliced into three pieces: one for the government (tax), one for the owners (dividends), and one for the company itself (undistributed profit).

Answer 1

The Correct Option is D

The total profit earned by a corporation is allocated in three primary ways:

Corporate Profit Tax: A portion of the profit is paid to the government as taxes.
Dividend: A portion of the after-tax profit is distributed to the shareholders as a return on their investment.
Undistributed Profit (or Retained Earnings): The remaining portion of the after-tax profit is kept by the company for future investment, expansion, or to cover future contingencies.
Since all three are dispositions of a firm's total profit, they are all considered components of profit.