Accounting, Analysis, and Principles On January 1, 2015, Nadal Corporation had the following equity accounts.

Share Capital—Ordinary (€10 par value, 60,000 shares issued and outstanding) €600,000 Share Premium—Ordinary 500,000 Retained Earnings 620,000 During 2015, the following transactions occurred.

Jan. 15 Declared and paid a €1.05 cash dividend per share to shareholders.

Apr. 15 Declared and issued a 10% share dividend. The market price of the shares was €14 per share.

May 15 Reacquired 2,000 ordinary shares at a market price of €15 per share.

Nov. 15 Reissued 1,000 shares held in treasury at a price of €18 per share.

Dec. 31 Determined that net income for the year was €370,000.

Accounting Journalize the above transactions. (Include entries to close net income to Retained Earnings.) Determine the ending balances to be reported for Share Capital—Ordinary, Retained Earnings, and Equity.

Analysis Calculate the payout ratio and the return on equity ratio.
Principles The Federer Group is examining Nadal’s financial statements and wonders whether the “gains” or “losses”
on Nadal’s treasury share transactions should be included in income for the year. Briefly explain whether, and the conceptual reasons why, gains or losses on treasury share transactions should be recorded in income.