BBB Corporation sells clothes to pet stores in Michigan. The company has the following equity at January 1, 2019:

Preferred shares, $1.25, 5,000 outstanding, 50,000 authorized (cumulative, non-convertible, non-voting)

Common shares, 4,500,000 outstanding, unlimited authorized Retained earnings

During 2020 the following transactions occurred: 1. Sold 20,000 common shares on February 1 for $5.50 each.

$ 125,000 $19,260,000 $ 1,380,000

2. On August 1 purchased land for a factory site in exchange for 10,000 preferred shares. The preferred shares are selling at $26 each and the value of the land is $280,000 according to the local real-estate agent.

3. Paid the annual preferred share dividend on November 30 to shareholders of record on November 15. The dividend was declared on November 1.

4. Profit at the end of the year is $298,000.

Required:

a) Record all of the transactions for 2020.

b) Provide the statement of changes in equity for 2020.

c) Provide the equity section of the statement of financial position for 2020.

d) Calculate the earnings per share for 2020.

e) Explain to the president, Jay Mitchell, the economic difference between buying an asset such as land for cash vs. buying it by issuing shares. Is it "better" to acquire a new asset without having to give up another asset such as cash?

f) Jay is considering not paying the preferred dividend in 2021 so that the company has extra cash to reinvest in the business. She tells you that the benefit of equity financing is that there is no requirement to pay dividends on either preferred or common shares.

Do you agree with Jay? Explain why or why not and any possible impact of not paying the dividend in 2021.

Part B: 2021

During 2021 BBB Corporation had the following equity transactions:

1. In late February there was a correction in the market and the company's shares dropped dramatically. The company, on March 1, repurchased 5,000 common shares in exchange for cash. The shares were purchased for $3.90 each. The shares were cancelled.

2. On April 1 issued 300 preferred shares to Benjamin Cain for legal services rendered in connection with a lawsuit. The shares are presently selling for $25 each and the invoice for the legal services shows a balance outstanding of $8,000.

3. On August 1 repurchased 6,000 more common shares in exchange for cash. The shares were now selling on the market for $5.25 each. The shares were repurchased in order to fulfill stock options from employees.

4. Paid the annual preferred share dividend on November 30 to shareholders of record on November 15. The dividend was declared on November 1.

5. Declared a 5% stock dividend to common shareholders on December 1 to shareholders of record on December 8. Issued the shares on December 20, 2021. Common shares were valued as follows on those dates: $5.80, $5,92, $6.21 respectively.

6. Profit for 2021 was $226,000.

Required:

a) Record all of the transactions for 2021.

b) Provide the statement of changes in equity for 2021.

c) Provide the equity section of the statement of financial position for 2021.

d) The president of the company, Jay, would like to better understand the impact on the financial statements, particularly the equity section of the statement of financial position, with regards to a cash dividend, stock dividend, and stock split. She would also like to better understand the reason why a company would want to split

their stock.