Table 16-8
On July 15, 2017, Sanders Ltd. purchased 5,000 common shares in Signet Mining Corporation for $32 per share and paid a $800 brokerage commission for the purchase. Sanders intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $29 per share. On February 15, 2018 Signet Mining announced a 2 for 1 stock split. Sanders sold one-half of the shares on March 31, 2018 for $15 per share.
-Refer to Table 16-8.After the distribution of shares relating to the stock split,the Sanders Ltd.cost per share:

Question

Quizplus · Accepted Answer

Since the stock split is 2 for 1, the number of shares held by Sanders doubles from 5,000 to 10,000. However, the cost of the investment remains the same at $32 per share. Therefore, the new cost per share is calculated by dividing the total cost by the new number of shares:

Total cost = 5,000 shares × $32 per share + $800 commission = $160,800 
New number of shares = 10,000 shares

New cost per share = $160,800 ÷ 10,000 shares = $16.08 per share

This represents a 50% decrease from the original cost per share of $32. Therefore, the answer is B.

Table 16-8 On July 15, 2017, Sanders Ltd. Purchased 5,000 Common Shares