Question

The following data are provided for Croatia Corp.’s last two fiscal years: Dec 31, 2021 Dec...

The following data are provided for Croatia Corp.’s last two fiscal years:

Dec 31, 2021 Dec 31, 2020
Cumulative preferred shares, $5, no par value,
     4,000 shares outstanding $200,000 $200,000
Common shares, no par, 24,000 shares outstanding 400,000 310,000
Retained earnings (post closing) 480,000 430,000
Net income 180,000


Additional information:
On May 1, 2021, 6,000 common shares were issued. Although dividends had been declared regularly up to December 31, 2020, preferred dividends were NOT declared during 2021. The market price of the common shares was $100 at December 31, 2021.

To the nearest percent, the rate of return on common shareholders’ equity for 2021 is:

20%.

18%.

22%.

23%.
Business   Accounting   
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Answer #1
Common Stockholder equity
2021 2020
Common Stock capital 400000 310000
Retained earnings 480000 430000
Common Stockholder's equity 880000 740000
Average Common Stockholder's equity = (880000+740000)/2 = 810000
Return on Cmmon Stockholder's equity:
Net Income 180000
Less: Annual Preferred dividend (4000*5) 20000
Net Income for common stcokholders 160000
Divide: Average Common St. equity 810000
Return on Cmmon Stockholder's equity: 19.75%
Answer is 20%
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