CBA Inc has 250,000 shares outstanding. The shares were issued for $14. The stock is currently selling for $34. CBA has $5,000,000 in retained earnings and has declared a stock dividend that will increase the number of outstanding shares by 6%. What will be the common stock account after the stock split?

Question

Quizplus · Accepted Answer

First, let's calculate the current value of common stock:

$14 per share x 250,000 shares = $3,500,000

Since the stock is currently selling for $34 per share, the current market value of the common stock is:

$34 per share x 250,000 shares = $8,500,000

Next, let's calculate the additional shares that will be issued as a result of the 6% stock dividend:

6% of 250,000 shares = 15,000 shares

Therefore, the total number of outstanding shares after the stock split will be:

250,000 shares + 15,000 shares = 265,000 shares

Lastly, we can calculate the new value of common stock:

$8,500,000 market value of common stock / 265,000 outstanding shares = $32.08 per share

The new value of common stock multiplied by the new number of outstanding shares will be:

$32.08 per share x 265,000 outstanding shares = $8,500,200

However, since the answer choices are rounded to the nearest thousand, the correct answer is C) $4,010,000. This seems like a typo since we are looking for the value of the common stock account and not the total value of the company. The closest answer is B) $3,500,000 which is the current value of common stock before the stock split.

CBA Inc Has 250,000 Shares Outstanding