On January 1, 2020, Komitu Inc. had the following equity accounts.

Share Capital - Preference (10 par value, 4,000 shares issued and outstanding)

400,000

Share Capital - Ordinary (10 par value, 75,000 shares issued and outstanding)

750,000

Share Premium - Ordinary

200,000

Retained Earnings

540,000

During the year, the following transactions occurred.

Jan. 15Declared a 2 cash dividend per share on preference shares to shareholders of record on January 31, payable February 15.

Jan. 20Discovered a 72,000 overstatement of 2019 depreciation expense on equipment (Ignore income taxes).

Feb. 15Paid the dividend declared in January.

Apr.15Declared a 20% share dividend on ordinary shares to shareholders of record on April 30, distributable May 15. On April 15, the market price of the shares was 15 per share.

May 15Issued the shares for the share dividend.

July 1Announced a 4-for-1 share split on ordinary shares. The marker price per share prior to the announcement was 15.

Dec. 1Declared a 0.60 per share cash dividend to shareholders of record on December 15, payable January 10, 2021.

Instructions

1. Journalize the transactions above. Indicate "no journal entry" on that date that you think there is no entry needed.

2. Explain why depreciation expense was overstated in 2019 and it should not be treated as an adjustment of the current year's income.

3. Explain the reasons why a company might decide to issue a share dividend rather than cash dividend.