Multiple choice

1. What are the rate of return on stockholders' equity and the rate of return on common stockholders'

equity (rounded to the nearest one-tenth of a percent) given the following information:

Net Income $350,000

Preferred Dividends 20,000

Common Stock 48,000

Common Stockholders’ Equity 1/1/2011 4,400,000

Total Stockholders’ Equity 1/1/2011 5,300,000

End of exam

Total Stockholders’ Equity 12/31/2011 5,500,000

A. Return on Stockholders' Equity: 7.8 %; Return on Common Stockholders' Equity: 8.9%

B. Return on Stockholders' Equity: 5.6 %; Return on Common Stockholders' Equity: 6.7%

C. Return on Stockholders' Equity: 8.1 %; Return on Common Stockholders' Equity: 9.2%

D. Return on Stockholders' Equity: 6.5 %; Return on Common Stockholders' Equity: 7.6%

2. What is the rate of return on equity if net income is $22,700; preferred dividends are $3,000; sales are $100,000; and average common stockholders' equity is $86,000?

A. 22.7%

B. 26.4%

C. 22.9%

D. 86.0%

3. Birch issued 200 shares of $12 par common stock in exchange for a piece of equipment with a current market value of $3,000. Which of the following is not part of the journal entry for this transaction?

A. Crediting paid-in capital in excess of par common for $600

B. Crediting common stock for $3,000

C. Crediting common stock for $2,400

D. Debiting equipment for $3,000

4. What is the rate of return on common stockholders' equity if sales are $100,000, net income is $22,700,

and average common stockholders' equity is $86,000?

A. 86.0%

B. The rate of return can't be determined from the information given.

C. 22.7%

D. 26.4%