The following data is provided. The return on common stock equity for 2015 is Ca

Question

The following data is provided. The return on common stock equity for 2015 is Cash Accounts recelvable (net) Inventories Plant assets (net) Accounts payable Income taxes payable Bonds payable | 10% Preferred stock, SSO par Common stock, $10 par Paid-in capital in excess of par Retained earnings Net credit sales Cost of goods sold Operating expense Net income 750,000 $S00,000 600,000 1,300,000 1,100,000 3,500,000 3,2s0,000 400,000 50,000 700,000 1,000,000 1,000,000 900,000 800,0006S0,000 1,750,000 800,000 550,000 100,000 700,000 1,200,000 2,000,000 6,400,000 4,200,000 1450,000 750,000 Depreciation included cost of goods sold and operating expenses is $610.000. On May 1, 2015, 30.000 shares of common stock were issued. The preferred stock is cumulative. The preferred dividends were not declared during 2015 ' Minimized View 750 3,600. 750+ 4,000. 650+3,650, Ver: 2.8.291 013 Nov 2017 17:36:37 10:13:06 PMeT LoudCloud Systems o search

Explanation / Answer

The formula for calculating return on common stock equity is;

Net Income - Preferred Dividend / Average Common Stock holders equity.

Net Income = 750,000 and Preferred Dividend = 1000000*10%= 100000.

Average common Stock Equity Calculation is as follows:

Average Common stock holders equity = [(5000000 + 4300000)/2] - [(1000000+1000000)/2]=4650000-1000000=3650000.

So return on common stock holders equity =(750000-100000) /3650000 = 650/3650.

Conclusion: Return on Common stock holders equity for 2015 is 650/3650.(option C)

Particulars 2015 2014 Preferred Stock 1000000 1000000 Common Stock 1200000 900000 Excess paid in capital 800000 650000 Retained Earnings 2000000 1750000 Total 5000000 4300000

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