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 a 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

After the 2-for-1 stock split, the number of outstanding shares will double to 12,000 shares. However, the par value per share will be halved to $0.50 per share. Therefore, the common stock account balance will remain the same at $6,000 ($1.00 x 6,000 shares = $6,000 before the split and $0.50 x 12,000 shares = $6,000 after the split).

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