Wide World Corporation issued a 3-for-2 stock split (i.e., three new shares in exchange for each two old shares turned in) of its common shares which had a market value of $100 before the split. What dollar amount of retained earnings should be transferred to the common share account?
A) Market value before the split.
B) Market value after the split.
C) Half of the previous total amount in the common share account(s).
D) None should be transferred.

Question

Quizplus · Accepted Answer

In a stock split, the company increases the number of shares outstanding and adjusts the share price accordingly, but no value is transferred from retained earnings to the common share account. The action is purely a division of the existing shares into a greater number of shares, with a proportional adjustment in share price, and does not affect the retained earnings.

Wide World Corporation Issued a 3-For-2 Stock Split (I