North Company reports the following amounts for 2020: $$\begin{array} { l r }
\text { Net income } & 160,000 \
\text { Average stockholders' equity } & 2,000,000 \
\text { Preferred dividends } & 45,000 \
\text { Parvalue preferred stock } & 250,000
\end{array}$$ The 2020 rate of return on common stockholders' equity is:

Question

North Company reports the following amounts for 2020: $$\begin{array} { l r } 
\text { Net income } & 160,000 \
\text { Average stockholders' equity } & 2,000,000 \
\text { Preferred dividends } & 45,000 \
\text { Parvalue preferred stock } & 250,000
\end{array}$$ The 2020 rate of return on common stockholders' equity is:

Quizplus · Accepted Answer

The rate of return on common stockholders' equity is calculated by subtracting preferred dividends from net income, then dividing by average common stockholders' equity. Here, it's $\frac{160,000 - 45,000}{2,000,000 - 250,000} = \frac{115,000}{1,750,000} = 0.0657$ or 6.6%.

North Company Reports the Following Amounts for 2020 The 2020 Rate of Return on Common Stockholders' Equity Is