Tillay Environmental Products Inc. (TEPI) began 2020 with 1.6 million common shares issued and outstanding for $4.0 million. Beginning Retained Earnings was $4.5 million. On February 26, 2020, TEPI issued 100,000 common shares at $3.50 per share. On November 16, 2020, when the market price was $5.00 per share, the board of directors declared a 10 percent stock dividend, which was distributed on December 20, 2020. Net income for the year was $550,000.

Required

1. Make the journal entries for the issuance of shares for cash and for the 10 percent stock dividend.

2. Prepare the company’s statement of retained earnings for the year ended December 31, 2020.