North Company reports the following amounts for 2015: The 2015 rate of return on common stockholders' equity is:
A)5.8%.
B)6.6%.
C)8.0%.
D)9.1%.

Question

North Company reports the following amounts for 2015:  The 2015 rate of return on common stockholders' equity is:
A)5.8%. 
B)6.6%. 
C)8.0%. 
D)9.1%.

Quizplus · Accepted Answer

The formula to calculate rate of return on common stockholders' equity is net income divided by average common stockholders' equity. In this case, net income is $580,000 ($530,000 + $50,000) and average common stockholders' equity is (($105,000 + $130,000) / 2) = $117,500. Therefore, the rate of return on common stockholders' equity is 4.94% ($580,000 / $117,500). Rounded to one decimal place, it is 6.6%. The correct answer is B.

North Company Reports the Following Amounts for 2015: the 2015