Farmer Company reports the following amounts for 2017: $$\begin{array} { l r }
\text { Net income } & \$ 270,000 \
\text { Average, stockholders' equity } & 1,000,000 \
\text { Preferred dividends } & 70,000 \
\text { Par value preferred stock } & 200,000
\end{array}$$ The 2017 rate of return on common stockholders' equity is

Question

Farmer Company reports the following amounts for 2017: $$\begin{array} { l r } 
\text { Net income } & \$ 270,000 \
\text { Average, stockholders' equity } & 1,000,000 \
\text { Preferred dividends } & 70,000 \
\text { Par value preferred stock } & 200,000
\end{array}$$ The 2017 rate of return on common stockholders' equity is

Quizplus · Accepted Answer

The rate of return on common stockholders' equity is calculated as net income minus preferred dividends divided by average stockholders' equity minus par value of preferred stock. In this case, the rate of return on common stockholders' equity is ($270,000 - $70,000) / ($1,000,000 - $200,000) = 25%.

Farmer Company Reports the Following Amounts for 2017 The 2017 Rate of Return on Common Stockholders' Equity Is