Team Shirts had net income of $23,000.The balance sheet showed beginning and ending balances in shareholders' equity of $100,000 and $110,000,respectively.There were no preferred shares and 20,000 common shares outstanding.Calculate the return on equity.

Question

Quizplus · Accepted Answer

Return on Equity (ROE) is calculated as net income divided by average shareholders' equity.
Average shareholders' equity can be calculated as (beginning shareholders' equity + ending shareholders' equity) / 2.
In this case, average shareholders' equity = ($100,000 + $110,000) / 2 = $105,000
ROE = net income / average shareholders' equity = $23,000 / $105,000 = 0.219 or 21.9%.
Therefore, the best choice is A) 21.9% as it correctly calculates the ROE for the given information.

Team Shirts Had Net Income of $23,000