E connect. This window ven if all of the work you have what is correct and incor

Question

E connect. This window ven if all of the work you have what is correct and incorrect for the work you have work you have completed done so fer is correct, you may not have completed everything 6. M11-13 Calculatin g and Interpreting Earnings per Share (EPS) and Return on Equity (ROE LO 11-5) Academy Driving School reported the r folowing amounts in its finencial statements of common shares 13,500 Net income 13,500 54,000 49,000 Cash dividends pald on common stock 2000 2.000 Total stockhoiders Calculate EPS and ROE for 0 Answer is complete but not entirely correct 440,000 420,000 year 2. (Round EPS to 2 decimal places and ROE to 1 decimal place.) 3.48 11.401% EPS ROE

Explanation / Answer

In this question, the average shareholders equity is (420000+440000)/2 = 430000.

Hence the ROE is (Net Income-Preferred Stock Dividend)/ Average Shareholder's equity
($49000-$0)/$430000= 11.4% which is correct.

In the case of EPS,

EPS = (Net Income- Preferred Stock dividend)/ No of outstanding shares.

$49000/13500 = $3.62.

Here since the $2000 dividend is paid on common stock, we will not deduct it from the Net Income to calculate EPS. Hence if you deducted it to arrive at $3.48, you are almost correct except for the $2000 dividend

Hope this helps

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