a.Solution approach: Record the journal entries for transactions 1-6 to determine the effects of the transactions on owners’ equity accounts:

1.	Dr.   Cash (320,000 shares @ $14.25 per share)	4,560,000
	Cr.   Common Stock (320,000 shares @ $5 per share)		1,600,000
	Cr.   Additional Paid-In Capital (320,000 @ $9.25 per share)		2,960,000
2.	Dr.   Cash (80,000 shares @ $18 per share)	,440,000
	Cr.   Treasury Stock (80,000 @ $18 per share)		1,440,000
3.	The credit in the closing entry process increases retained earnings by $1,280,000.
4.	Dr.   Retained Earnings (96,000 shares @ $4.50 per share)	432,000
	Cr.   Cash		432,000
5.	Dr.   Retained Earnings (3,000,000 + 320,000 + 80,000 = 3,400,000)	680,000
	Cr.   Cash (3,400,000 shares outstanding * 0.20 per share)		680,000

6.  No entry is required for a 2 for 1 stock split.  The number of shares issued and outstanding are each doubled (i.e., multiplied by two); the par value per share and the annual dividend per share are each halved (i.e., divided by two).  The market price per share is likely to settle at approximately half of its pre-split value.

Note that the number of shares authorized will normally be increased to accommodate a stock split, but this requires shareholder approval.  In this case, the 200,000 shares authorized would be sufficient to accommodate the post-split number of shares issued of 96,000.  However, there would not be much cushion for future share issuances.  Thus, a stock split in these circumstances would not normally be affected until it is approved at the next annual shareholders’ meeting (along with the approval to increase the number of authorized shares, perhaps to 400,000). 

Dollar amounts reported on the June 30, 2011, balance sheet:?(000 omitted)

Preferred stock (No changes to the $5,760,000 amount reported last year)	$  5,760
Common stock ($16,400,000 + $1,600,000)	18,000
Additional Paid-In Capital on Common Stock ($22,960,000 + $2,960,000)	25,920
Retained Earnings ($19,920,000 + $1,280,000 - $432,000 - $680,000)	20,088
Treasury Stock ($5,040,000 - $1,440,000)	(3,600)
Total Owners’ Equity	$66,168