Gomez Company reports the following amounts for 2014: $$\begin{array} { l r }
\text { Net income } & \$ 150,000 \
\text { Average shareholders' equity } & 2,600,000 \
\text { Preference dividends } & 48,000 \
\text { Parvalue preference shares } & 200,000
\end{array}$$ The 2014 rate of return on ordinary shareholders' equity is
A) 5.1%.
B) 5.7%.
C) 7.5%.
D) 8.3%.

Question

Gomez Company reports the following amounts for 2014: $$\begin{array} { l r } 
\text { Net income } & \$ 150,000 \
\text { Average shareholders' equity } & 2,600,000 \
\text { Preference dividends } & 48,000 \
\text { Parvalue preference shares } & 200,000
\end{array}$$ The 2014 rate of return on ordinary shareholders' equity is
A) 5.1%.
B) 5.7%.
C) 7.5%.
D) 8.3%.

Quizplus · Accepted Answer

The rate of return on ordinary shareholders' equity is calculated as (Net Income - Preference Dividends) / Average Ordinary Shareholders' Equity. Here, it is ($150,000 - $48,000) / $2,400,000 = 5.7%.

Gomez Company Reports the Following Amounts for 2014 The 2014 Rate of Return on Ordinary Shareholders' Equity Is