The following information pertains to Dallas Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the return on stockholders' equity?
A) 7.3%
B) 13.6%
C) 20.5%
D) 40.9%

Question

The following information pertains to Dallas Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.​​  What is the return on stockholders' equity?
A) 7.3% 
B) 13.6% 
C) 20.5% 
D) 40.9%

Quizplus · Accepted Answer

Return on stockholders' equity = Net income / Average stockholders' equity

Net income = Sales - Cost of goods sold - Operating expenses - Interest expense
Net income = 1,500,000 - 850,000 - 400,000 - 50,000 = 200,000

Average stockholders' equity = (Beginning stockholders' equity + Ending stockholders' equity) / 2
Average stockholders' equity = (1,000,000 + 2,100,000) / 2 = 1,550,000

Return on stockholders' equity = 200,000 / 1,550,000 = 0.136 or 13.6%

Therefore, the best choice is B.

The Following Information Pertains to Dallas Company