When Calculating the Return on Common Equity Ratio, Dividends to Preferred

question 153

Multiple Choice

When calculating the return on common equity ratio, dividends to preferred stockholders are deducted from net income because

• A)the ratio is an indicator of the return on common stockholders equity rather than the return on total equity.
• B)dividends are not expenses on the current period income statement.
• C)conservatism indicates that stockholders prefer a smaller numerator.
• D)dividends are only available for distribution to common stockholders after the preferred stockholders have received their dividends.

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