Ariat Productions produces and distributes several popular television shows. Following is information about stockholders’ equity for the company’s 2008 and 2009 balance sheets.
• Preferred Stock: $10 par value; 5,000,000 shares authorized; 1,200,000 shares were issued at par in 2008 and were outstanding all of 2009; each share of preferred has a $0.60 per share annual dividend amount.
• Common Stock: $0.10 par value; 7,500,000 shares authorized; a total of 4,925,000 shares and 4,983,000 shares were issued by end of 2008 and 2009, respectively.
• Additional Paid-In Capital on Common Stock: The 4,925,000 common shares were sold for $15.50 each; the common shares sold during 2009 were sold for $19.40 each.
• Treasury Stock: Accounted for at cost; 120,800 shares were held in the treasury at the end of 2008, each having been purchased for $16 per share; during 2009, 20,000 shares of treasury stock were sold for $18 per share and an additional 3,500 shares were purchased for $21 per share.
• Retained Earnings: Ariat had $1,819,360 and $1,083,700 of net income for 2008 and 2009. The annual dividend was paid each year on preferred stock but no dividends were paid in either year on common stock.
• Net Income: respectively.
Required:
(a) Prepare a Statement of Stockholders’ Equity for Ariat Productions at the end of 2008 and at the end of 2009.
(b) Compute the book value per share of Ariat’s common stock at the end of 2008 and 2009.
(c) Compute Ariat’s return on equity for 2008 and 2009. Did this ratio improve or deteriorate in 2009 compared with the previous year?
(d) For this requirement, assume that Ariat does not have any preferred stock and that the amount previously computed for preferred stock dividends was paid instead to common stockholders at year-end. If the average market price per common share in 2009 were $20, what would be the dividend yield on common stock in 2009?
(e) Identify one reason that may explain why Ariat’s common stock has such a low par value.