The equity accounts of Gonzalez SA at January 1, 2020, are as follows.

Share Capital—Preference, no par, 4,000 shares issued .............................€400,000
Share Capital—Ordinary, no par, 140,000 shares issued ...............................700,000
Retained Earnings ...............................................................................................550,000

During 2020, the company had the following transactions and events.
July 1 Declared a €0.50 cash dividend per share on ordinary shares.
Aug. 1 Discovered a €72,000 overstatement of 2019 depreciation expense. (Ignore income taxes.)
Sept. 1 Paid the cash dividend declared on July 1.
Dec. 1 Declared a 10% share dividend on ordinary shares when the market price of the shares was €12 per share.
15 Declared a €6 per share cash dividend on preference shares, payable January 31, 2021.
31 Determined that net income for the year was €320,000.

Instructions
With the class divided into groups, answer the following questions.
a. Prepare a retained earnings statement for the year. There are no preference dividends in arrears.
b. Discuss why the overstatement of 2019 depreciation expense is not treated as an adjustment of the current year’s income.
c. Discuss the reasons why a company might decide to issue a share dividend rather than a cash dividend.