Question 1 (35 marks)

Use the following information for Midge Inc. to complete the requirements below.

Midge Inc. Shareholders Equity As at Dec. 31, 2015
Common Shares, no-par; 500,000 shares authorized; 80,000 issued and outstanding	$600,000
Retained Earnings	1,000,000
Total Shareholders Equity	$1,600,000

2016 Transactions

Mar	3	Issued 5,000 common shares at $20 per share.
June	11	Declared a cash dividend of $0.25 per share to common shareholders of record on June 25, payable on July 6.
Aug.	21	Declared a 5% stock dividend to common shareholders of record on September 5, distributable on September 20. The shares were trading for $22 a share on August 21, $24 on September 5, and $26 on September 20.
Nov.	1	Issued 3,000 common shares at $25 per share.
Dec.	20	Declared a cash dividend of $0.30 per share to common shareholders of record on December 31, payable on January 10.

2016 Net Income: $217,610

Required

Record the above transactions for 2016. (Note: Closing entries are not required.)

ii) Prepare the Shareholders Equity section of their financial statements as at Dec. 31, 2016.

Question 1 (cont)

b) LX Corporation has 10,000 common shares issued when it announces a 3-for-1 split. Before the split, the shares were trading for $120 per share.

Required

i) After the split, how many shares will be issued?

ii) How should LX record the share split?

iii) Just following the split, what will be the likely share price?