The following data are provided: December 31 2018 2017 $ 1500000 $ 1020000 17500

Question

The following data are provided:

December 31

2018

2017

$ 1500000

$ 1020000

1750000

1100000

2550000

2200000

7500000

6600000

1050000

800000

220000

90000

1500000

1500000

1950000

1950000

2450000

1900000

1500000

1200000

4100000

3500000

12850000

8450000

3000000

1500000

Additional information:
Depreciation included in cost of goods sold and operating expenses is $1230000. On May 1, 2018, 55000 shares of common stock were issued. The preferred stock is cumulative. The preferred dividends were not declared during 2018.

The return on common stock equity for 2018 is

December 31

2018

2017

Cash

$ 1500000

$ 1020000

Accounts receivable (net)

1750000

1100000

Inventories

2550000

2200000

Plant assets (net)

7500000

6600000

Accounts payable

1050000

800000

Income taxes payable

220000

90000

Bonds payable

1500000

1500000

10% Preferred stock, $50 par

1950000

1950000

Common stock, $10 par

2450000

1900000

Paid-in capital in excess of par

1500000

1200000

Retained earnings

4100000

3500000

Net credit sales

12850000

Cost of goods sold

8450000

Operating expenses

3000000

Net income

1500000

Explanation / Answer

Hi

Answer to this would be 1305 / 8050

Return on Equity = Net Income (net of preference dividend ) / Shareholder's Equity

Return on Equity = (1,500,000 - 195,000) / (2,450,000 + 1,500,000 + 4,100,000)

Since preferred stock is cumulative liability will be provided i.e., 1,950,000 x 10% = 195,000

Shareholder's Equity = Paid in capital + Share premium (excess money par value of equity) + Retained earnings + Treasury stock (if any)

Common stock = 2,450,000

Paid in capital in excess of par| = 1,500,000

Retained Earnings = 4,100,000

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