Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of ﬁnancial position shows £15,000 in the ordinary equity account,
£315,000 in the additional paid in capital account, and £189,000 in the retained earnings account.
The ﬁrm just announced a 3-for-2 stock split.What will the value of the ordinary equity account be
After the split?

Question

Quizplus · Accepted Answer

A 3-for-2 stock split means that each shareholder will receive 1.5 new shares for every 1 share they currently own. Since Robinson's has 15,000 shares outstanding, the total number of shares will increase to 22,500 (15,000 x 1.5). However, the par value per share will be reduced to 2/3 of its original value, or £0.67. Therefore, the value of the ordinary equity account will remain the same at £15,000 (15,000 shares x £0.67 par value per share).

Robinson's Has 15,000 Shares Outstanding with a Par Value of £1.00