Barber Industries reported net sales of $92,000, net income of $32,000, dividends paid to preferred stockholders of $7,000, dividends paid to common stockholders of $10,000, average number of shares outstanding is 5,000 and average common stockholders' equity of $96,000.What is the return on common stockholders' equity?
A)26.0%
B)33.3%
C)88.5%
D)95.8%

Question

Quizplus · Accepted Answer

The return on common stockholders' equity (ROE) is calculated by taking the net income available to common stockholders (net income - preferred dividends) and dividing it by the average common stockholders' equity. Here, it's ($32,000 - $7,000) / $96,000 = $25,000 / $96,000 = 0.2604 or 26.0%.

Barber Industries Reported Net Sales of $92,000, Net Income of $32,000