Required:

a Prepare the journal entries for the redemption.

b Discuss the possible business purposes of the redemption.

c Describe the effects on creditors of such redemption.

In December 2019, Daylen Company evaluated the capital structure of its company. The board of directors decided to redeem the existing redeemable preference shares funded by issuing ordinary shares, valued at $1 each, of the Company on 1 January 2020. The following was the balance sheet of the Company at 31 December 2019. Cash Other assets Total assets $000 45,000 26,000 71,000 Less: Liabilities Accounts payable Total net assets 6,000 65,000 Ordinary share capital (26,000 shares issued and fully paid) 12% Redeemable preference share capital Retained earnings Total equity 26,000 35,000 4,000 65,000