Question

Quantitative Reasoning Problem 2

ACC 122

Assignment is to be completed as a Word Document, PDF, or on notebook paper and submitted through Moodle

The table below contains letters a, b, c, d.

	2018	2017
Average common stockholder equity	$1,800,000	$1,900,000
Dividends paid to common shareholders	90,000	70,000
Dividends paid to preferred shareholders	20,000	20,000
Net Income	290,000	248,000
Market Price of common stock	$20	$25
Weighted average number of shares common stock outstanding	150,000	180,000
Earnings per share	(a)	(b)
Return on common stockholders equity	(c)	(d)

Tell what these formulas are used for : Earnings per share; Return on common stockholder equity

Show all your computations or calculations for each of the letters (a), (b), (c ) (d)

Provide a sentence of explanation for each answer telling why you did what you did

Answer 1

Req a and b
			2018	2017
Net Income			290000	248000
Less: Prefered dividend			20000	20000
Net Income for common Stockholder			270000	228000
Divide: Average Number of Shares			150000	180000
Earning per share			1.8	1.27
Earnings per share the income earned per common share by the business
Thus preferred dividend paid is deducted from net income to find the net income for common Stockholders.
Req c and d:
			2018	2017
Net Income			290000	248000
Less: Prefered dividend			20000	20000
Net Income for common Stockholder			270000	228000
Divide: Average common Equity			1,800,000	1900000
Return on Common Equity			15%	12%
Here, instead of computing per share basis, the percentagge of return earned is computed.