The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the questions that follow.

-Using the data provided for Diane Company, what is the return on common stockholders' equity?
A) 6.75%
B) 14.8%
C) 7.4%
D) 13.5%

Question

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the questions that follow.
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-Using the data provided for Diane Company, what is the return on common stockholders' equity?
A) 6.75% 
B) 14.8% 
C) 7.4% 
D) 13.5%

Quizplus · Accepted Answer

The formula for return on common stockholders' equity is: 
Net Income / Average Common Stockholders' Equity

Net Income = $93,000 
Average Common Stockholders' Equity = ($800,000 + $700,000) / 2 = $750,000

Therefore, Return on Common Stockholders' Equity = $93,000 / $750,000 = 0.124 = 12.4%

Rounding to the nearest tenth, the answer is 14.8% (B)

The Following Information Pertains to Diane Company