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.total cost of the investment:

Question

Quizplus · Accepted Answer

The total number of shares owned by Sanders Ltd. doubles after the stock split but the cost per share is halved. As a result, the total cost of the investment remains the same (5000 shares x $32 per share = $160,000 before the split; 10,000 shares x $16 per share = $160,000 after the split). Therefore, choice C is correct.

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