The stockholders' equity section of the balance sheet of the XYZ Corp. is as follows: If the company now splits its stock 3-for-1, which of the following is correct?
A) The par value per share will remain at $6.
B) The market price per share will probably remain unchanged.
C) The book value per share will decline to $17.60.
D) The par value per share will decline to $2.00.

Question

The stockholders' equity section of the balance sheet of the XYZ Corp. is as follows:  If the company now splits its stock 3-for-1, which of the following is correct?
A) The par value per share will remain at $6. 
B) The market price per share will probably remain unchanged. 
C) The book value per share will decline to $17.60. 
D) The par value per share will decline to $2.00.

Quizplus · Accepted Answer

If stock split 3-for-1, the number of shares will increase threefold to 30 million (10 million x 3), and the par value per share will decline to $2 ($6/3). Total common stock will remain unchanged at $60 million ($2 x 30 million). The market price per share will probably decrease in proportion to the increase in shares, but the book value per share will remain unchanged at $26 since retained earnings will also increase threefold to $180 million (60 million x 3).

The Stockholders' Equity Section of the Balance Sheet of the XYZ