The following information pertains to Dallas Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Cash and short-term investments $ 40,000 Accounts receivable (net) 30,000 Inventory 25,000 Property, plant, and equipment 280,000 Total assets $375,000 Liabilities and Stockholders' Equity Current liabilities $ 60,000 Long-term liabilities 95,000 Stockholders' equity-Common 220,000 Total liabilities and stockholders' equity $375,000 Income Statement Sales $90,000 Cost of goods sold 45,000 Gross margin $45,000 Operating expenses 15,000 Net income $30,000 Number of shares of common stock 6,000 Market price of common stock $20 Dividends per share $1.00 Cash provided by operations $40,000 What is the return on stockholders' equity?

Question

Business

Alfie

25 May, 10:55

The following information pertains to Dallas Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Cash and short-term investments $ 40,000 Accounts receivable (net) 30,000 Inventory 25,000 Property, plant, and equipment 280,000 Total assets $375,000 Liabilities and Stockholders' Equity Current liabilities $ 60,000 Long-term liabilities 95,000 Stockholders' equity-Common 220,000 Total liabilities and stockholders' equity $375,000 Income Statement Sales $90,000 Cost of goods sold 45,000 Gross margin $45,000 Operating expenses 15,000 Net income $30,000 Number of shares of common stock 6,000 Market price of common stock $20 Dividends per share $1.00 Cash provided by operations $40,000 What is the return on stockholders' equity?

+1

Answers (1)

Know the Answer?

Mathew Young · Answer 1

Return on stockholders' equity = 13.64%

Explanation:

We know,

Return on stockholders' equity = (Net income : Average common stockholders' equity) * 100

Given,

Net income = $30,000

Average common stockholders' equity = 220,000

Putting the values into the formula, we can get

Return on stockholders' equity = ($30,000 : $220,000) * 100

Or, Return on stockholders' equity = 0.1364 * 100

Or, Return on stockholders' equity = 13.64%

As there is no information regarding the previous year's common stock, therefore, we will use current year common stock only.