The average stockholders' equity for Horn Co.last year was $2,000,000.Included in this figure was $200,000 of preferred stock.Preferred dividends were $16,000.If the return on common stockholders' equity was 12.5% for the year,net income was:
A)$225,000
B)$250,000
C)$241,000
D)$234,000

Question

Quizplus · Accepted Answer

Return on common stockholders' equity = (Net income - Preferred dividends)F1F1F1S1F1F1F10 Average common stockholders' equity
12.5% = (Net income - $16,000)F1F1F1S1F1F1F10 ($2,000,000 - $200,000)
Net income -$16,000 = 12.5% F1F1F1S1F1F1F10 $1,800,000
Net income = 12.5% F1F1F1S1F1F1F10 $1,800,000 + $16,000
= $225,000 + $16,000 = $241,000

The Average Stockholders' Equity for Horn Co