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:

Service

An intangible activity or benefit provided to satisfy the needs of a consumer or business.

Essential Goods

Items considered necessary for basic human survival and well-being, such as food, water, and shelter.

Nonessential Goods

Goods considered as luxuries or not necessary for basic living, often subject to reduced spending during economic downturns.

Expensive

Involving high cost or price; something that is costly.