Journalize the transactions. If no entry is required, select "No Entry Required" and leave the amount boxes blank. For a compound transaction, if an amount box does not require an entry, leave it blank. Jan. 8. Split the common stock 2 for 1 and reduced the par from $80 to $40 per share. After the split, there were 150,000 common shares outstanding. Jan. 8 Apr. 30. Declared semiannual dividends of $0.75 on 18,000 shares of preferred stock and $0.28 on the common stock payable on July 1. Apr. 30 July 1. Paid the cash dividends. July 1 Oct. 31. Declared semiannual dividends of $0.75 on the preferred stock and $0.14 on the common stock (before the stock dividend). In addition, a 5% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $52. Cash dividends Stock dividends Dec. 31. Paid the cash dividends and issued the certificates for the common stock dividend. Payment Issuance

Journal Entries:

Jan 8: Stock split

Jan 8:

Debit Dividends: Preferred $13,500

Debit Dividends: Common Stock $42,000

Credit Dividends Payable $55,500

To record semiannual dividends declared.

July 1:

Debit Dividends Payable $55,500

Credit Cash Account $55,500

To record payment of cash dividends.

Oct. 31:

Debit Dividends: Preferred $13,500

Debit Dividends: Common Stock $21,000

Credit Dividends Payable $34,500

To record semiannual dividends declared.

Oct, 31:

Debit Dividends: Common Stock $300,000

Credit Dividends Payable $300,000

To record 5% stock dividend on common stock.

Dec. 31:

Debit Dividends Payable $34,500

Credit Cash Account $34,500

To record cash dividends paid.

Dec. 31:

Debit Dividends Payable $300,000

Credit Common Stock $300,000

To record the issue of certificates for the common stock dividend.

Explanation:

a) Stock split is a decision to increase the number of outstanding shares and reduce the market price of shares by the same ratio.  It makes the shares attractive to most investors.  The transaction does not have any financial effect, since the number of shares are increased and the share price is reduced by the same amount.

b) Stock dividend is payment to stockholders in the form of stock and not cash.  It involves the issue of additional share certificate to outstanding stockholders as a compensation.  The dividend is not usually subject to tax at the time of issue until the shares are sold.

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