Q18SE - Horngren'S Financial And Managerial Accounting

Question

Computing rate of return on common stockholders’ equity Wyler, Inc.’s 2018 balance sheet reported the following items—with 2017 figures given for comparison: 

Total Assets Total Liabilities and Stockholders’ Equity Total Liabilities Total Stockholders’ Equity (all common) WYLER, INC. Balance Sheet As of December 31, 2018, and December 31, 2017 \( 39,600 December 31, 2018 17,100 22,500 18,500 14,962 December 31, 2017 \) 39,600 \( 33,462 \) 33,462 Net income for 2018 was $3,690. 

Compute Wyler’s rate of return on common stockholders’ equity for 2018.

Step-by-Step Solution

Answer

Rate of Return on common stockholders’ equity for 2018 is 18%

Step 1: Computation of Average Outstanding Common Stock

$\begin{array}{c}\mathbf{Averageoutstandingcommonstock}\mathbf{=}\frac{\mathrm{Beginningcommonstock}-\mathrm{Endingcommonstock}}{2}\\ \mathbf{=}\frac{22,500+18,500}{2}\\ =20,500\mathrm{shares}\end{array}$

Step 2: Computation of Rate of Return on common stockholders’ equity for 2018

Rate of Return on common stockholders’ equity
Net Income	$3,690
Less: Preference dividend	0
a	$3,690
b. Average outstanding common stock	20,500
Rate of Return on common stockholders’ equity (a/b) *100	18%