Question

In: Accounting

Sheffield Corp. had net income of $163625 and paid dividends of $48500 to common stockholders and...

Sheffield Corp. had net income of $163625 and paid dividends of $48500 to common stockholders and $16500 to preferred stockholders in 2020. Sheffield Corp.’s common stockholders’ equity at the beginning and end of 2020 was $890000 and $1250000, respectively. Sheffield Corp.’s return on common stockholders’ equity was

13.75%.

10.75%.

9.75%.

15.75%.

Solutions

Expert Solution

Correct Option A i.e. 13.75%
Return on Equity = Net Income to common stockholder/ Average Equity
                                    = 147125 / 1070000
13.75%
Net Income to common stockholder
Net Income          163,625
Less: Dividend to preference stockholder          (16,500)
Net Income to common stockholder          147,125
Average Equity =( Beginning Equity + Ending Equity )/2
     =(890000 + 1250000)/2
                                                        1,070,000

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