The following data are provided: Additional information:On May 1, 2015, 5,000 shares of common stock were issued. The preferred dividends were not declared during 2015. The market price of the common stock was $50 at December 31, 2015.The rate of return on common stock equity for 2015 is calculated as

Question

The following data are provided:  Additional information:On May 1, 2015, 5,000 shares of common stock were issued. The preferred dividends were not declared during 2015. The market price of the common stock was $50 at December 31, 2015.The rate of return on common stock equity for 2015 is calculated as

Quizplus · Accepted Answer

To calculate the rate of return on common stock equity for 2015, we need to use the formula:
Rate of return on common stock equity = (Net Income - Preferred Dividends) / Average Common Stockholders' Equity
Since the preferred dividends were not declared during 2015, we can disregard it in the formula.
The average common stockholders' equity can be calculated by adding the beginning common stockholders' equity with the ending common stockholders' equity and dividing by 2.
Beginning common stockholders' equity = 0
Ending common stockholders' equity = (5,000 shares × $50 per share) = $250,000
Average common stockholders' equity = ($0 + $250,000) / 2 = $125,000
Therefore, the rate of return on common stock equity for 2015 = (Net Income) / Average Common Stockholders' Equity
It is given that the market price of the common stock was $50 at December 31, 2015. This information is not relevant in calculating the rate of return on common stock equity.
The net income is not given in the provided data, so we cannot calculate the rate of return on common stock equity. Therefore, we can choose the answer based on the calculation method alone, which is option C, as it is the only option that calculates the rate of return on common stock equity correctly.

The Following Data Are Provided: Additional Information:On May 1