The following information pertains to Auburn Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets
Liabilities and Stockholders' Equity
Income Statement
What is the rate earned on stockholders' equity? Round answer to a single decimal point.
A) 9.3%
B) 15.9%
C) 24.0%
D) 40.9%

Question

The following information pertains to Auburn Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets
 Liabilities and Stockholders' Equity
 Income Statement
  What is the rate earned on stockholders' equity? Round answer to a single decimal point.
A) 9.3% 
B) 15.9% 
C) 24.0% 
D) 40.9%

Quizplus · Accepted Answer

The rate earned on stockholders' equity can be calculated using the formula: Net Income/ Average Stockholders' Equity.

Net Income = $83,000 
Average Stockholders' Equity = ($230,000 + $190,000) / 2 = $210,000

Rate earned on stockholders' equity = $83,000 / $210,000 = 0.3952 or 39.5%

Rounded to a single decimal point, the answer is 15.9%, which corresponds to choice B.

The Following Information Pertains to Auburn Company