Question

Income statement: 2018

Sales $2,500,000
Cost of goods sold $1,300,000
Net income $200,000

Balance sheets:
2018
Accounts receivable $300,000
Total assets $2,000,000
Total shareholders' equity $900,000

2017
Accounts receivable $200,000
Total assets $1,800,000
Total shareholders' equity $700,000

The return on shareholders' equity for 2018 is:

Answer 1

The return on shareholders' equity for 2018 is 25%.

Step-by-step explanation:

The return on shareholders' equity for 2018 can be calculated using the formula: Return on Shareholders' Equity = Net income / Average shareholders' equity. In this case, the net income for 2018 is $200,000. To calculate the average shareholders' equity, we need the shareholders' equity for both 2017 and 2018. The shareholders' equity for 2017 is $700,000, while the shareholders' equity for 2018 is $900,000. Therefore, the average shareholders' equity is ($700,000 + $900,000) / 2 = $800,000. Now we can calculate the return on shareholders' equity: $200,000 / $800,000 = 0.25, or 25%.