Question

The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:

		December 31
		20Y7		20Y6		20Y5
Total assets		$220,000		$198,000		$176,000
Notes payable (8% interest)		70,000		70,000		70,000
Common stock		28,000		28,000		28,000
Preferred 5% stock, $100 par		14,000		14,000		14,000
	(no change during year)
Retained earnings		76,430		54,870		42,000

The 20Y7 net income was $22,260, and the 20Y6 net income was $13,570. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.

a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders’ equity for the years 20Y6 and 20Y7. When required, round to one decimal place.

Answer 1

	20Y7	20Y6
Return on total assets	10.7%	7.3%
Return on stockholders’ equity	20.7%	15.0%
Return on common stockholders’ equity	23.8%	17.8%

	20Y7
Return on total assets	=22260/((198000+220000)/2)
Return on stockholders’ equity	=22260/(((28000+14000+76430)+(28000+14000+54870))/2)
Return on common stockholders’ equity	=22260/(((28000+76430)+(28000+54870))/2)
	20Y6
Return on total assets	=13570/((198000+176000)/2)
Return on stockholders’ equity	=13570/(((28000+14000+42000)+(28000+14000+54870))/2)
Return on common stockholders’ equity	=13570/(((28000+42000)+(28000+54870))/2)