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

Before the split, the total equity of the company was:
(6,000 shares x £1 par value per share) + £136,000 additional paid in capital + £234,000 retained earnings = £376,000
After the 2-for-1 stock split, the number of shares outstanding will become twice the previous amount, so the total equity remains the same:
(12,000 shares x £0.50 par value per share) + £136,000 additional paid in capital + £234,000 retained earnings = £606,000
Therefore, the ordinary equity account balance after the split will be £6,000.

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