Use this balance sheet and income statement for the first year of operations for Cane Construction to answer the following question.Use ending balances whenever average balances are required for computing ratios.

-The return on equity for Cane Construction is
A)62.5 percent.
B)43.2 percent.
C)84 percent.
D)60 percent.

Question

Use this balance sheet and income statement for the first year of operations for Cane Construction to answer the following question.Use ending balances whenever average balances are required for computing ratios. 
 
-The return on equity for Cane Construction is
A)62.5 percent. 
B)43.2 percent. 
C)84 percent. 
D)60 percent.

Quizplus · Accepted Answer

Return on equity (ROE) is calculated by dividing the net income available to common shareholders by average common shareholders' equity. Using the ending balances from the balance sheet, average equity for the year is ($80,000 + $65,000) / 2 = $72,500. Net income available to common shareholders ($45,000 - $3,500) = $41,500. Therefore, ROE = $41,500 / $72,500 = 0.5724 or 57.24%, which is closest to 43.2% (B).

Use This Balance Sheet and Income Statement for the First