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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Definitions:

Exchange Rate

The value of one currency for the purpose of conversion to another.

Country's Currency

The legal tender issued by a country's government, used as a medium of exchange within its economy.

Consumer Protection Agency

Government or independent organizations tasked with protecting the rights of consumers through the enforcement of laws and regulations that prevent fraud, unfair practices, and misinformation.

Consumer Nationalism

The preference for buying domestic goods over foreign goods as a form of patriotism, often influenced by the belief that purchasing home-grown products supports the national economy.