Question

Do It! Review 11-4b

On January 1, 2017, Bramble Corp. purchased 4,500 shares of treasury stock. Other information regarding Bramble Corp. is provided as follows.

2017 2016
Net income $115,000 $105,000
Dividends on preferred stock $28,900 $28,900
Dividends on common stock $24,400 $20,000
Weighted-average number of common shares outstanding 49,000 52,000
Common stockholders’ equity beginning of year $712,950 $481,000
Common stockholders’ equity end of year $884,450 $637,000

(a)

Compute return on common stockholders’ equity for each year. (Round answers to 1 decimal place, e.g. 15.2.)

2016 2017
Return on common stockholders' equity
%
%

Do It! Review 11-4b On January 1, 2017, Bramble Corp. purchased 4,500 shares of treasury stock. Other information regarding Bramble Corp. is provided as follows. 2017 2016 Net income $115,000 $105,000 Dividends on preferred stock $28,900 $28,900 Dividends on common stock $24,400 $20,000 Weighted-average number of common shares outstanding 49,000 52,000 Common stockholders’ equity beginning of year $712,950 $481,000 Common stockholders’ equity end of year $884,450 $637,000 (a) Compute return on common stockholders’ equity for each year. (Round answers to 1 decimal place, e.g. 15.2.) 2016 2017 Return on common stockholders' equity % %

Answer 1

Solution:

	2016	2017
Return on Equity = ( Net Income - Preferred Dividend / Average Stockholder's Equity
Return on Equity =	10.8%	13.6%
Net Income	115,000	105,000
Preferred Dividend	28,900	28,900
Net Income after preferred dividend	86,100	76,100
Average stock holder's equity = ( Beginning + Ending stockholder's equity / 2 )
Beginning	712,950	481,000
Ending	884,450	637,000
Average stock holder's equity	798,700	559,000