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 formula to calculate rate earned on stockholders' equity is (net income / average stockholders' equity) x 100. 
Using the information given in the financial statements we can calculate: 
Net income = $105,000 
Average stockholders' equity = ($292,000 + $318,000) / 2 = $305,000 
Rate earned on stockholders' equity = (105,000/305,000) x 100 = 34.4% 
Rounding the answer to a single decimal point gives us choice B, which is 15.9%.

The Following Information Pertains to Auburn Company