Question

1 return on stock-holders' discuss changes 0 . Ranu Lalulis 15 12WW.Fiedle ule S IDIOCIS equity section of the balance sheet. DO IT! 11.4b (L04) On January 1, 2020, Vahsholtz Corporation purchased 5,000 shares of treasury stock. Other information regarding Vahsholtz Corporation is provided as follows. 2019 2020 Net income $100,000 $110,000 Dividends on preferred stock $ 30,000 $ 30,000 Dividends on common stock $ 20.000 Weighted average number of common shares outstanding 50,000 Common stockholders' equity beginning of year 45,000 $600,000 Common stockholders' equity end of year $750,000 $750,000 $830,000 Compute(a) return on common stockholders' equity for each year, and (b) discuss the che $ 25,000

Answer 1

	a) Return On Common Shareholders Equity
	Average Common Share Holders Equity = (Opening Equity+ Closing Equity)/ 2
		For year 2019 = ($600000+750000)/2
			=$675000
		For Year 2020 = ($750000+830000)/2
			=$790000
	Return on common shareholders equity
	= (Net Income - Preferred Dividend)/ Average Common Shareholders Equity
	For 2019 = (100000-30000)/$675000
	=	10.37%
	For 2020 = (110000-30000)/790000
		80000
	=	10.13%
	b)	Discussion:
	1) Return on common stockholders equity has reduced in 2020
	2) The main reason for the reduction is the increase in average common shareholders' equity.
	which is increasing because all income is not distributed in the year 2019 and 2020
	consequently, it turns into retained earnings.
	3)There is a favorable effect also such as an increase in net income as compared to 2019.