Western Mountain Water has 35,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $948,000. The balance sheet shows a capital in excess of par value account balance of $72,800 and retained earnings of $368,400. The company just announced a stock split of three-for-one. What will be the capital in excess of par value account balance after the split?

Question

Quizplus · Accepted Answer

After the split, the number of outstanding shares will be 35,000 x 3 = 105,000. The new par value per share will be $1/3 = $0.33. The total par value of outstanding shares will remain the same at $35,000. The market value of the firm will be adjusted to reflect the split, so the new market value will be $948,000 / 3 = $316,000.

The capital in excess of par value account balance will remain the same, as it represents the amount received from selling shares above their par value. Therefore, the answer is C, $72,800.

Western Mountain Water Has 35,000 Shares of Stock Outstanding with a Par