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Week 6 class 2 - Week 6 class 2 7 Common shares(1,000 $10...

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Week 6 class 2 7. Common shares (1,000 × $10) 10,000 Retained earnings (1,000 × [$12 – $10]) 2,000 Cash 12,000 To record repurchase of 1,000 shares at $12.00. 9. A preferred shareholder would rather own cumulative preferred shares, because any preferred dividends passed by the corporation must be paid before paying dividends to the common shareholders. The corporation would rather the preferred shares be noncumulative in order to avoid having to pay dividends in arrears to preferred shareholders. 10. Retained Earnings is an owners’ equity account. Its balance is the cumulative, lifetime earnings of the company, less its cumulative losses and cumulative dividends. It is not cash. A company may have a large balance of retained earnings and a small balance of cash or vice versa. There is no precise relationship between a company’s retained earnings and its cash. 12. The market value of a share is the price for which a person could buy or sell a single share. The book value of a share is the amount of owners’ equity on the company’s books for each share. Market value is far more important to investors than book value.
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