Transactions of Kettle Corporation are as follows.
1. The company is granted a charter that authorizes the issuance of 150,000 preferred shares and 150,000 common shares without par value.
2. The founders of the corporation are issued 10,000 common shares for land valued by the board of directors at $210,000 (based on an independent valuation).
3. Sold 15,200 preferred shares for cash at $110 per share.
4. Repurchased and cancelled 3,000 shares of outstanding preferred shares for cash at $100 per share.
5. Repurchased and cancelled 4,000 preferred shares for cash at $98 per share.
6. Repurchased for cash and cancelled 500 shares of the outstanding common shares issued in item 2 above at $49 per share.
7. Issued 2,000 preferred shares at $99 per share.
Instructions
(a). Prepare entries in journal form to record the transactions listed above. No other transactions affecting the capital share accounts have occurred.
(b). Assuming that the company has retained earnings from operations of $1,032,000, prepare the shareholders’ equity section of its balance sheet after considering all the transactions above.
(c). Why is the distinction between paid-in capital and retained earnings important?
(d). How would the repurchase of the preferred shares differ if the preferred shares were retractable or callable/ redeemable?