The Retail Outlet has 6,000 shares of stock outstanding with a par value of $1.00 per share.The current market value of the firm is $420,000.The balance sheet shows the capital in excess of par account value of $136,000 and retained earnings of $234,000.The company just announced a 2-for-1 stock split.What will the common stock account balance be after the split?

Question

Quizplus · Accepted Answer

A 2-for-1 stock split means that each shareholder will receive two shares for every one share they own. Since the company has 6,000 shares outstanding, after the split, there will be 12,000 shares outstanding. However, the total value of the company remains the same at $420,000.

To find the new value per share, we divide the total value of the company by the number of outstanding shares after the split:
$420,000 / 12,000 shares = $35.00 per share

Since the par value remains the same at $1.00 per share, the common stock account balance after the split will be:
$35.00 x 6,000 shares = $210,000

Therefore, the total common stock account balance after the split and the distribution of the additional shares will be $6,000.

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