On December 31, 2010, the shareholders' equity section of Eastwood Inc.'s statement of financial position appeared as

Question:

On December 31, 2010, the shareholders' equity section of Eastwood Inc.'s statement of financial position appeared as follows:

During 2011, the following events occurred:
1. Eastwood issued 120,000 additional common shares for $15 per share.
2. The company declared and paid the dividend on the preferred shares for the first half of the year.
3. Immediately after paying the preferred dividend for the first half of t
he year, the company repurchased and cancelled all the preferred shares at the redemption price of $103 per share.
4. The company declared and distributed a 5% stock dividend when the market price of the share was $46 per share.
5. In November, the share price had risen to $100 per share, so the board of directors voted to split the shares five-for-one.
6. Late in December, the board declared a cash dividend on the common shares of $0.50 per share payable in early January 2010. In past years, the dividend had generally been about $2.00 per share.
7. The company earned income of $720,000 for 2011 and other comprehensive income of $85,000.
Required:
a. Use a spreadsheet or table format like the one in the practice problem to track all of the changes in the shareholders' equity accounts in 2011. Use the table to prepare the statement of changes in shareholders' equity for 2011.
b. Prepare the shareholders' equity section of the statement of financial position as at the end of 2011.
c. If you owned 50,000 common shares on January 1, 2011, and did not buy or sell any shares during the year, how has your ability to influence the management of the company changed over the year? Did you need to consider the existence of preferred shares on January 1, 2011? Explain.
d. What effect did each dividend (stock dividend and cash dividend) have on the financial statements?
e. What reasons might the company have for declaring a stock dividend?
f. What reasons might the company have for splitting the shares?
g. If you were a common shareholder, would you be happy or unhappy with the stock dividend and stock split? Explain.
h. What do you think about the reduction in the cash dividend from $2.00 to $0.50? Explain.
i. Why would an investor purchase common shares rather than preferred shares? Or vice versa?
j. Give possible reasons for a company to change its equity financing by eliminating its preferred shares and issuing more common shares.