The balance sheets at the end of each of the first two years of operations indicate the following:

-If net income is $150,000 and interest expense is $20,000 for Year 2,what is the rate earned on stockholders' equity for Year 2?
A)6.9%
B)14.5%
C)16.4%
D)13.8%

Question

The balance sheets at the end of each of the first two years of operations indicate the following:

-If net income is $150,000 and interest expense is $20,000 for Year 2,what is the rate earned on stockholders' equity for Year 2?
A)6.9% 
B)14.5% 
C)16.4% 
D)13.8%

Quizplus · Accepted Answer

The rate earned on stockholders' equity is calculated by dividing net income by stockholders' equity. In this case, net income is $150,000 and stockholders' equity is not given. However, we can assume that stockholders' equity is $1,000,000. Therefore, the rate earned on stockholders' equity is $150,000/$1,000,000 = 15%.

The Balance Sheets at the End of Each of the First