Selected financial data for Irvington Company appear below: $\begin{array}{lrr}
& {\text { Account Balances }} \
& \begin{array}{c}
\text { Beginning } \
\text { of year }
\end{array} & {\begin{array}{c}
\text { End of } \
\text { year }
\end{array}} \
\text { Preferred shares } & \$ 125,000 & \$ 125,000 \
\text { Common shares } & 300,000 & 400,000 \
\text { Retained earnings } & 75,000 & 185,000
\end{array}$

During the year,the company paid dividends of $10,000 on its preferred shares.The company's net income for the year was $120,000.The company's return on common shareholders' equity for the year was closest to which of the following?

Question

Selected financial data for Irvington Company appear below: $\begin{array}{lrr} 
& {\text { Account Balances }} \
& \begin{array}{c}
\text { Beginning } \
\text { of year }
\end{array} & {\begin{array}{c}
\text { End of } \
\text { year }
\end{array}} \
\text { Preferred shares } & \$ 125,000 & \$ 125,000 \
\text { Common shares } & 300,000 & 400,000 \
\text { Retained earnings } & 75,000 & 185,000
\end{array}$

During the year,the company paid dividends of $10,000 on its preferred shares.The company's net income for the year was $120,000.The company's return on common shareholders' equity for the year was closest to which of the following?

Quizplus · Accepted Answer

Return on common shareholders' equity is calculated as (Net Income - Preferred Dividends) / Average Common Equity. Net Income is $120,000, Preferred Dividends are $10,000, and Average Common Equity is ($300,000 + $400,000 + $75,000 + $185,000 - $125,000) / 2 = $417,500. Thus, the return is ($120,000 - $10,000) / $417,500 = 26.39%, closest to 23%.

Selected Financial Data for Irvington Company Appear Below During the Year,the Company Paid Dividends of $10,000 on Its