The balance of the $0.50 par value Common Stock account for Murdock Company was $60,000 before its recent 3-for-1 stock split.The market price of the stock was $30 per share before the stock split.What likely occurred as a result of the stock split?
A)The balance in the Retained Earnings account likely decreased.
B)The balance in the Common Stock account likely declined to $20,000.
C)The market price of the stock was not likely affected.
D)The market price of the stock likely dropped to approximately $10 per share.

Question

Quizplus · Accepted Answer

After a 3-for-1 stock split, the number of outstanding shares triples, but the total equity (common stock + retained earnings) remains the same. Therefore, the balance in the Common Stock account would be adjusted to reflect the new number of shares issued, which would be 3 times the original amount, or $180,000. The market price of the stock would be adjusted accordingly, which is likely to drop because the stock is now more affordable and accessible to investors. The market price per share would approximately be $10 per share because the total market capitalization of the company remains the same, but the number of outstanding shares has tripled.

The Balance of the $0