Harris Corporation had net income of $230,000 and paid dividends of $50,000 to common stockholders and $20,000 to preferred stockholders in 2010. Harris Corporation's common stockholders' equity at the beginning and end of 2010 was $870,000 and $1,130,000, respectively. There are 100,000 weighted-average shares of common stock outstanding.
Harris Corporation's return on common stockholders' equity was

Question

Quizplus · Accepted Answer

Return on common stockholders' equity = (Net income - Preferred dividends) / Average common stockholders' equity.

Preferred dividends = $20,000.

Average common stockholders' equity = (Beginning common stockholders' equity + Ending common stockholders' equity) / 2

= ($870,000 + $1,130,000) / 2

= $1,000,000

Net income - Preferred dividends = $230,000 - $20,000 = $210,000

Return on common stockholders' equity = ($210,000 / $1,000,000) * 100%

= 21%

Therefore, the answer is B.

Harris Corporation Had Net Income of $230,000 and Paid Dividends