Robinson's has 15,000 shares of stock outstanding with a market price of $36 per share. The balance sheet shows $330,000 in the common stock 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 common
Stock account be after the split?

Question

Quizplus · Accepted Answer

A stock split does not change the total value of the common stock account or the retained earnings account. It simply increases the number of shares outstanding and decreases the market price per share proportionally. In this case, the 3-for-2 stock split means that each shareholder will receive 1.5 new shares for every 1 share they currently own. This will increase the number of outstanding shares from 15,000 to 22,500 (15,000 x 1.5). However, the total value of the common stock account will remain the same at $330,000 (15,000 shares x $22 per share after the split).

Robinson's Has 15,000 Shares of Stock Outstanding with a Market