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 rate earned 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 rate earned on stockholders' equity?
A) 7.3% 
B) 13.6% 
C) 20.5% 
D) 40.9%

Quizplus · Accepted Answer

The rate earned on stockholders' equity can be calculated by dividing net income by average stockholders' equity. 
Net income is $60,000 
Average stockholders' equity is ($300,000 + $200,000)/2 = $250,000. 
Therefore, the rate earned on stockholders' equity is: 
$60,000/$250,000 = 0.24 or 24%. 
However, since the options are given in percentages, the answer would be closest to option B, which is 13.6%.

The Following Information Pertains to Dallas Company