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Net income is $248,000. Total stockholders' equity was $2,447,000 at the start and $2,675,000 at the end of the year. What is the return on stockholders' equity (to one decimal percent)?
A10.1%
B9.3%
C9.7%
D5.0%
Answer & Solution
Correct answer: C. 9.7%
1. Average equity = ($2,675,000 + $2,447,000) / 2 = $2,561,000.
2. Return on equity = net income / average equity = $248,000 / $2,561,000.
3. = 0.0968 = 9.7%.
4. Trap: 9.3% (option B) uses ending equity of $2,675,000 instead of the average.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.4 "Return on Stockholders' Equity", p.306_
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