(Learning Objectives 1, 2, 5: Explaining the features of a corporation’s shares)

McGahan Corporation is conducting a special meeting of its board of directors to address some concerns raised by the shareholders. Shareholders have submitted the following questions.

Answer each question.

1. Why are ordinary shares and retained earnings shown separately in the shareholders’

equity section of the balance sheet?

2. Linda Leary, a McGahan shareholder, proposes to transfer some land she owns to the company in exchange for a share of the company shares. How should McGahan Corporation determine the number of shares to issue for the land?

3. Preference shares generally are preference with respect to dividends and in the event of our liquidation. Why would investors buy our ordinary shares when preference shares are available?

4. What does the redemption value of our preference shares require us to do?

5. One shareholder asked the board why the market value per share is not the same as the book value per share. Explain why this is the case.