Selected financial data for Irvington Company appear below: Account Balances End of year Beginning of year Preferred shares $ 125 , 000 $ 125 , 000 Common shares $ 400 , 000 $ 300 , 000 Retained earnings $ 185 , 000 $ 75 , 000 \begin{array} { | l | l | l | } \hline & ext { Account Balances } & \\hline & ext { End of year } & ext { Beginning of year } \\hline ext { Preferred shares } & \$ 125,000 & \$ 125,000 \\hline ext { Common shares } & \$ 400,000 & \$ 300,000 \\hline ext { Retained earnings } & \$ 185,000 & \$ 75,000 \\hline\end{array} Preferred shares Common shares Retained earnings Account Balances End of year $125 , 000 $400 , 000 $185 , 000 Beginning of year $125 , 000 $300 , 000 $75 , 000 During the year, the company paid dividends of $10,000 on its preferred shares. The company's net income for the year was $120,000. The company's return on common shareholders' equity for the year is closest to:A) 19%.B) 17%.C) 23%.D) 25%.

Question

Selected financial data for Irvington Company appear below:    Account Balances   End of year   Beginning of year   Preferred shares  $ 125 , 000 $ 125 , 000  Common shares  $ 400 , 000 $ 300 , 000  Retained earnings  $ 185 , 000 $ 75 , 000 \begin{array} { | l | l | l | } \hline  &  	ext { Account Balances }  &  \\hline  &  	ext { End of year }  &  	ext { Beginning of year } \\hline 	ext { Preferred shares }  &  \$ 125,000  &  \$ 125,000 \\hline 	ext { Common shares }  &  \$ 400,000  &  \$ 300,000 \\hline 	ext { Retained earnings }  &  \$ 185,000  &  \$ 75,000 \\hline\end{array}  Preferred shares   Common shares   Retained earnings  ​  Account Balances   End of year  $125 , 000 $400 , 000 $185 , 000 ​  Beginning of year  $125 , 000 $300 , 000 $75 , 000 ​ ​   During the year, the company paid dividends of $10,000 on its preferred shares. The company's net income for the year was $120,000. The company's return on common shareholders' equity for the year is closest to:A) 19%.B) 17%.C) 23%.D) 25%.

Nicholas Kraft · Accepted Answer

Final Answer : C, Explanation :  The return on common shareholders' equity is calculated as (Net Income - Preferred Dividends) / Average Common Equity. For Irvington Company, this is ($120,000 - $10,000) / [($400,000 + $300,000) / 2] = $110,000 / $350,000 = 31.43%, which is closest to 23%.

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