Question

Income statement: 20X2 Sales $ 2,500,000 Cost of goods sold 1,300,000 Net income 200,000 Balance sheets: 20X2 20X1 Accounts receivable $ 300,000 $ 200,000 Total assets 2,000,000 1,800,000 Total shareholders' equity 900,000 700,000 The return on shareholders' equity for 20X2 is: Multiple Choice 20% 8% 22.22% 25%

Answer 1

25%

Step-by-step explanation:

Return on shareholder's equity = Net income / Average shareholder's equity balance

Net income = $200,000

Average shareholder's equity balance = ($900,000 + $700,000) / 2

= $800,000

Therefore,

Return on shareholder's equity = $200,000 / $800,000

Return on shareholder's equity = 25%