The following data is provided The return on common stock eq

The following data is provided. The return on common stock equity for 2015 is Cash Accounts recelvable (net) Inventories Plant assets (net) Accounts payable Income taxes payable Bonds payable | 10% Preferred stock, SSO par Common stock, $10 par Paid-in capital in excess of par Retained earnings Net credit sales Cost of goods sold Operating expense Net income 750,000 $S00,000 600,000 1,300,000 1,100,000 3,500,000 3,2s0,000 400,000 50,000 700,000 1,000,000 1,000,000 900,000 800,0006S0,000 1,750,000 800,000 550,000 100,000 700,000 1,200,000 2,000,000 6,400,000 4,200,000 1450,000 750,000 Depreciation included cost of goods sold and operating expenses is $610.000. On May 1, 2015, 30.000 shares of common stock were issued. The preferred stock is cumulative. The preferred dividends were not declared during 2015 \' Minimized View 750 3,600. 750+ 4,000. 650+3,650, Ver: 2.8.291 013 Nov 2017 17:36:37 10:13:06 PMeT LoudCloud Systems o search

Solution

The formula for calculating return on common stock equity is;

Net Income - Preferred Dividend / Average Common Stock holders equity.

Net Income = 750,000 and Preferred Dividend = 1000000*10%= 100000.

Average common Stock Equity Calculation is as follows:

Average Common stock holders equity = [(5000000 + 4300000)/2] - [(1000000+1000000)/2]=4650000-1000000=3650000.

So return on common stock holders equity =(750000-100000) /3650000 = 650/3650.

Conclusion: Return on Common stock holders equity for 2015 is 650/3650.(option C)

Particulars	2015	2014
Preferred Stock	1000000	1000000
Common Stock	1200000	900000
Excess paid in capital	800000	650000
Retained Earnings	2000000	1750000
Total	5000000	4300000