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 Pearl Holdings Inc. was incorporated on July 1, 2011 with authorized share capital of 1,000,000 common shares and 500,000 preferred $4-cumulative preferred shares, convertible to common shares at a rate of 10 common shares for each preferred share. During its first year of operations Pearl had profit of $126,000, other comprehensive income of $3,500 and declared no dividends. Pearl had the following transactions related to share capital during the year.

Jul. 1, 2011 Issued 100,000 common shares for $2 each.
Jul. 1, 2011 Issued 5,000 preferred shares for $75 each.
Aug. 15, 2011 Issued 10,000 common shares for legal services received, valued at $25,000.
Dec. 1, 2011 Issued 5,000 common shares at $2.25 each in exchange for equipment received.
Jan. 15, 2012 Reacquired 15,000 common shares for $3 each.
Mar. 8, 2012 Half of the preferred shares were converted to common shares. On this date, the market value of the common shares was $3.10 and the preferred share value was $80.


(a) Prepare the entries to record the share transactions described above.

(b) Prepare the shareholder equity section of Pearl's balance sheet at June 30, 2012, the date of its first year end.

(c) find out the return on equity for the first year of operations. Use the July 1, 2011 share capital as the beginning balance for the purpose of calculating average shareholder equity.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M948696

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