Wichita,Incorporated reported the following amounts on its financial statements prepared as of the end of the current accounting period: What is the company's return-on-equity ratio?
A)6%
B)12%
C)27%
D)45%

Question

Wichita,Incorporated reported the following amounts on its financial statements prepared as of the end of the current accounting period:  What is the company's return-on-equity ratio?
A)6% 
B)12% 
C)27% 
D)45%

Quizplus · Accepted Answer

To calculate the return-on-equity ratio, we divide the net income by the average equity.

Net Income = $180,000 
Average Equity = ($420,000 + $400,000) / 2 = $410,000

Return-on-equity ratio = Net Income / Average Equity = $180,000 / $410,000 = 0.439 
Return-on-equity ratio = 43.9%

The closest answer choice is C, which is 27%. Therefore, the correct answer is C.

Wichita,Incorporated Reported the Following Amounts on Its Financial Statements Prepared