Question

Exercise 11-22 - In 2020, Sheffield Corp. had net sales of $593,000 and cost of goods sold of $358,000. Operating expenses were $152,000, and interest expense was $8,000. The corporation's tax rate is 32%. The corporation declared preferred dividends of $14,500 in 2020, and its average common stockholders' equity during the year was $150,000. Prepare an income statement for Sheffield Corp.. Sheffield Corp. Income Statement Compute Sheffield Corp.'s return on common stockholders' equity for 2020. (Round answer to 1 decimal place, e.g. 10.5%. Return on common stockholders' equity

Answer 1

Income statement is give below.

Description	Amount
Revenues & other items:
Sales	593000
Total revenues	593000
Expenses & other items:
Cost of goods sold	358000
Operating expenses	152000
Interest expense	8000
Income tax expense	24000
Total expenses & other items	542000
Net income	51000

Income tax expense in the above income statement is calculated as per below:

Income tax expense = 32% * (Revenues - Expenses)

Income tax expense = 32% * ($593000 - $358000 - $152000 - $8000)

Income tax expense = 32% * $75000 = $24000

Return on common stockholder's equity = Net income - Preferred dividends / Average common stockholder's equity * 100

Putting the values in the above formula, we get,

Return on common stockholder's equity = ($51000 - $14500) / $150000 * 100

Return on common stockholder's equity = $36500 / $150000 * 100

Return on common stockholder's equity = 24.33%