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Chapter 13: Q25RQ (page 707)

What does the rate of return on common stock show, and how is it calculated?

Short Answer

Expert verified

The rate of return on common stock is computed by dividing a corporate's net income by the average common stockholders' equity.

Step by step solution

01

Introduction to topic

Return on common stockholders' equity ratio estimates the progress of a corporation in generating income for the benefit of common stockholders

02

The rate of return on common stock show-

The rate of return on common stock represents the relationship between net income available to common stockholders and their average common equity invested in the corporation. It is calculated by taking net income reduce preferred dividends and then dividing that number by weighted average common stockholders' equity.

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Most popular questions from this chapter

Question: Journalizing a small stock dividend

Element Water Sports has 13,000 shares of \(1 par value common stock outstanding.

Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.

Requirements

2. What is the overall effect of the stock dividend on Element’s total assets?

Question: Journalizing a small stock dividend

Element Water Sports has 13,000 shares of \(1 par value common stock outstanding.

Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.

Requirements

3. What is the overall effect on total stockholders’ equity?

What are the two basic sources of stockholders’ equity? Describe each source.

Computing price/earnings ratio Refer to the HEB data in Short Exercise S13-17. Assume the market price of HEB’s common stock is $19.50 per share. Compute HEB’s price/earnings ratio.

Question: Identifying sources of equity, stock issuance, and dividends

Tillman Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—5%, ? Par Value; 625,000 shares

authorized, 325,000 shares issued and outstanding

Paid-In Capital:

\( 1,300,000

1,350,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders’ Equity \) 17,050,000

Common Stock—\(1 Par Value; 7,000,000 shares

authorized, 1,350,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a \)200,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.
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