Preferred Products started business on March 1, 2012, and issued 100,000 shares of $2 par value common stock at a market price of $50 per share. One year later, the share price had soared to $120. If Preferred Products does a 3-for-1 stock split, the balance sheet will show common stock with a par value of $0.67 per share.

Question

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After a 3-for-1 stock split, the number of shares increases to 300,000 (3 times the original 100,000 shares), and the par value per share is divided by 3, changing from $2 to approximately $0.67 per share to maintain the overall capital attributed to the common stock at the same level.

Preferred Products Started Business on March 1, 2012, and Issued