The 2019 balance sheet for Standard Electronics reported the following items - with 2018 figures given for comparison: Net income for 2019 was $25,000. Compute the rate of return on common stockholders' equity for 2019. (Round your final answer to two decimal places.)

Question

The 2019 balance sheet for Standard Electronics reported the following items - with 2018 figures given for comparison:  Net income for 2019 was $25,000. Compute the rate of return on common stockholders' equity for 2019. (Round your final answer to two decimal places.)

Quizplus · Accepted Answer

Rate of return on common stockholders' equity = Net income ÷ Average common stockholders' equity.

To calculate Average common stockholders equity, we need to take the average of the beginning and ending equity balances:

Average common stockholders' equity = (Common stockholders' equity at the end of 2019 + Common stockholders' equity at the beginning of 2019) ÷ 2

Average common stockholders' equity = (($168,000 + $150,000) ÷ 2) = $159,000

Rate of return on common stockholders' equity = $25,000 ÷ $159,000 = 0.1109 or 11.09%

Therefore, the best choice is (C) 11.09%

The 2019 Balance Sheet for Standard Electronics Reported the Following