The Retail Outlet has 6,000 shares outstanding with a par value of £1.00 per share.The current market value of the ﬁrm is £420,000.The statement of ﬁnancial position shows the additional paid
In capital account value of £136,000 and retained earnings of £234,000.The company just
Announced a 2-for-1 stock split.What will the ordinary equity account balance be after the split?

Question

Quizplus · Accepted Answer

A 2-for-1 stock split means that each shareholder will receive 2 shares for every 1 share they currently hold. Therefore, the number of outstanding shares will double to 12,000 (6,000 x 2). However, the par value per share will be halved to £0.50. The additional paid in capital account value and retained earnings will not be affected by the stock split. Therefore, the new ordinary equity account balance will be 12,000 shares x £0.50 par value = £6,000.

The Retail Outlet Has 6,000 Shares Outstanding with a Par