Katie Inc. reported net income of $186,000 for the current year and paid dividends

Katie Inc. reported net income of $186,000 for the current year and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value, noncumulative preferred stock outstanding. Common stockholders’ equity was $1,200,000 on January 1 and $1,600,000 on December 31. The company’s return on common stockholders’ equity for the current year is

13.3%.

7.1%.

10.0%.

9.0%.

The return on common stockholder’s equity is Net income available to common stockholders divided by Average common stockholder’s equity. The net income available to common stockholders is net income less preferred stock dividends = $126,000 ($186,000-(10,000 x .06 x $100)). The company’s return on common stockholders’ equity for the year is 9% ($126,000/ ($1,200,000 +$1,600,000)/2)).