Houle Ltd. was incorporated on January 15, 2020, and was authorized to issue 2,000,000 common shares and an unlimited amount of 13% fixed dividend, cumulative, retractable, non-participating, non-voting preferred shares. During the remainder of 2020, the company entered into the following transactions.

1. Houle issued 500,000 common shares in exchange for $8,250,000 in cash.

2. A total of 200,000 preferred shares were issued for $12 a share.

3. A dividend was declared on the preferred shares.

4. A $0.25 dividend per share was declared on the common shares.

5. The dividend on the preferred shares was paid.

6. The dividend on the common shares was paid.

7. The company had net income of $2.1 million for the year. The closing entries for net income and the dividends declared accounts were prepared.

Required

a. Prepare journal entries to record the above transactions.

b. Prepare the shareholders’ equity section of the statement of financial position as at December 31, 2020.

c. Using the features of Houle’s preferred shares, discuss why preferred shares are considered to be hybrid securities.