On January 1, 2017, Blue Spruce Corp. purchased 5,000 shares of treasury stock.

Question

On January 1, 2017, Blue Spruce Corp. purchased 5,000 shares of treasury stock. Other information regarding Blue Spruce Corp. is provided as follows. 2017 2016 $97,000 87,000 $32,700 $32,700 $22,300 $20,000 42,000 55,000 $661,500 $495,000 $840,000 $660,000 Net income Dividends on preferred stock Dividends on common stock Common stockholders' equity beginning of year Common stockholders' equity end of year Compute return on common stockholders' equity for each year. (Round answers to 1 decimal place, e.g. 15.2.) 2017 2016 Return on common stockholders' equity

Explanation / Answer

Return on Common Stockholders' Equity for 2016

= (Net Income - Dividend on preferred stock) / Average shareholders' Equity

= ($87,000 - $32,700) / [($495,000 + $660,000) / 2]

= $54,300 / $577,500

= 9.4%

Return on Common Stockholders' Equity for 2017

= (Net Income - Dividend on preferred stock) / Average shareholders' Equity

= ($97,000 - $32,700) / [($661,500 + $840,000) / 2]

= $64,300 / $750,750

= 8.6%

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