Use the following information for Midge Inc. to complete the requirements below.
ID: 2580023 • Letter: U
Question
Use the following information for Midge Inc. to complete the requirements below.
Foran Inc. Shareholder’s Equity
As at Dec. 31, 2016
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
2017 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.
2017 Net Income: $217,610
Required
A)
i) Record the above transactions for 2017. (Note: Closing entries are not required.)
ii) Prepare the Shareholders’ Equity section of their financial statements as at Dec. 31, 2017.
B) Feng 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.
i) After the split, how many shares will be Issued?
ii) How should Feng Corporation record the share split?
iii) Just following the split, what will be the likely share price?
Foran Inc. Shareholder’s Equity
As at Dec. 31, 2016
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
Explanation / Answer
A)
i) Journal Entries :
ii) Share holder's Equity section as on Dec 31, 2017 :
B)
i) After the split, the shares will be issued = 30000 shares
ii) No entry
iii) After the split , the share price would be = $120 / 3 = $40 per share
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Date Accounts Titles and explanation Debit $ Credit $ Mar 3 Cash 100000 Common Stock 100000 (being 5000 common stock issued at $20 per share) June 11 Dividend 21250 Dividend Payable 21250 (dividend paid $0.25 per share on 85000 shares) July 6 Dividend Payable 21250 Cash 21250 (being cash dividend paid off) Aug 21 Stock Dividend 93500 Common Stock Distributable 93500 (85000*5%*$22, Stock dividend declared) Sep 20 Common Stock Distributable 93500 Common Stock 93500 (the stock dividend distributed) Nov 1 Cash 75000 Common Stock 75000 (issued 3000 shares for $25 per share) Dec 20 Dividend 27675 Dividend Payable 27675 (92250*$0.30) Dec 31 Retained Earnings 142425 Cash Dividend 21250 Stock Dividend 93500 Cash Dividend 27675 (the cash & stock dividend transferred to Retained Earnings)