Francis Forensic Inc has 500,000 shares outstanding. The shares were issued for $10. The stock is currently selling for $40. Francis Forensic has $6,000,000 in retained earnings and has declared a stock dividend that will increase the number of outstanding shares by 10%. What will be the common stock account after the stock split?

Question

Quizplus · Accepted Answer

The stock dividend will increase the number of outstanding shares by 10%, so the new number of shares will be 550,000. The par value of the stock will remain the same, so the total par value of the stock will be $5,500,000. The retained earnings will be reduced by the amount of the stock dividend, which is $1,500,000. Therefore, the common stock account after the stock split will be $7,000,000.

Francis Forensic Inc Has 500,000 Shares Outstanding