Romax Company had net income of $147,000.The balance sheet showed beginning and ending balances in shareholders' equity of $750,000 and $790,000,respectively.There were 69,000 common shares outstanding and no preferred stock.Calculate return on equity.

Question

Quizplus · Accepted Answer

Return on equity is calculated by dividing net income by average shareholders' equity. 
Average shareholders' equity = (beginning shareholders' equity + ending shareholders' equity) / 2 
Average shareholders' equity = ($750,000 + $790,000) / 2 = $770,000

Return on equity = Net income / Average shareholders' equity 
Return on equity = $147,000 / $770,000 
Return on equity = 0.1909 or 19.09%

Therefore, the correct choice is C.

Romax Company Had Net Income of $147,000