A growing corporation had $180,000 of its $30 par common stock issued before its recent 3-for-1 stock split. The market price of the stock was $120 per share before the split. Which of the following is true as a result of the split?

Question

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Before the stock split, the corporation had $180,000 of its $30 par common stock issued. To determine the number of shares issued before the split, we divide the total value of the issued stock by the par value per share:
Number of shares issued before the split = Total value of issued stock / Par value per share
Number of shares issued before the split = $180,000 / $30
Number of shares issued before the split = 6,000 shares
Now, the corporation is performing a 3-for-1 stock split. This means that for every share an investor holds, they will now hold 3 shares. The number of shares will thus be multiplied by 3:
Number of shares issued after the split = Number of shares before the split * 3
Number of shares issued after the split = 6,000 shares * 3
Number of shares issued after the split = 18,000 shares
Let's evaluate the statements given:
a. There were 24,000 shares (6,000 + 18,000) of common stock issued after the split.
This statement is incorrect. After the split, there are 18,000 shares issued, not 24,000. The original 6,000 shares are now represented by the 18,000 shares after the split.
b. The balance in the common stock account increased to $540,000.
This statement is incorrect. The balance in the common stock account remains the same after a stock split because a stock split does not affect the total value of the stock issued, only the number of shares and the par value per share. The balance in the common stock account would still be $180,000.
c. The market price of the stock tripled.
This statement is incorrect. Typically, after a stock split, the market price per share decreases because the number of shares increases while the total market capitalization remains the same. In a 3-for-1 split, the market price per share would be expected to divide by 3, not triple.
d. The par value of the stock decreased to $10 per share.
This statement is correct. In a 3-for-1 stock split, the par value per share is divided by the split ratio. Therefore, the new par value per share would be:
New par value per share = Old par value per share / Split ratio
New par value per share = $30 / 3
New par value per share = $10
So, the correct statement as a result of the 3-for-1 stock split is:
d. The par value of the stock decreased to $10 per share.

A Growing Corporation Had $180,000 of Its $30 Par Common