The following shareholders’ equity accounts are reported by Talty Inc. on January 1: 

Common shares (unlimited authorized, 500,000 issued) ................................... ..................$4,000,000 

Preferred shares ($9 noncumulative, convertible, 100,000 authorized, 4,000 issued) ...........600,000 

Contributed surplus—reacquisition of common shares .................................................................2,000 

Retained earnings ..........................................................................................................................1,958,000

The following selected transactions occurred during the year: 

Jan. 17 Issued 50,000 common shares at $10 per share. 

Feb. 27 Reacquired 20,000 common shares at $12 per share. 

Apr. 14 Split the common shares 2 for 1 when the common shares were trading at $20 per share. 

June 25 Reacquired 500 preferred shares at $145 per share. 

Aug. 16 Reacquired 100,000 common shares for $11 per share. 

Oct. 17 Declared a 5% common stock dividend distributable on December 3 to shareholders of record on November 14. On October 17, the fair value of the common shares was $10. 

Dec. 3 Distributed the stock dividend declared on October 17. On December 3, the fair value of the common shares was $12.50. 

Instructions 

a. Prepare journal entries for the transactions. 

b. Show how each class of shares will be presented in the shareholders’ equity section of the balance sheet at December 31.

Provide possible reasons why Talty split the common shares and issued a stock dividend.