Kong Inc. reported net income of $298,000 during 2015 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. Common stockholders' equity was $1,200,000 on January 1, 2015, and $1,600,000 on December 31, 2015. The company's return on common stockholders' equity for 2015 is:

Question

Quizplus · Accepted Answer

First, we need to calculate the average common stockholders’ equity for the year, which is:

($1,200,000 + $1,600,000) / 2 = $1,400,000

Next, we need to subtract the preferred dividends from the net income to get the earnings available to common stockholders:

$298,000 - $10,000 (6% of $100,000) = $288,000

Finally, we can calculate the return on common stockholders’ equity:

$288,000 / $1,400,000 = 0.2057 or 20.57%

Therefore, the closest answer is B) 17.0%

Kong Inc Reported Net Income of $298,000 During 2015 and Paid