Question

Forward Stock Split On March 1 of the current year, Sentry Corporation has 500,000 shares of $20 par value common stock that are issued and outstanding. The general ledger shows the following account balances relating to the common stock: Common stock $10,000,000 Paid-in capital in excess of par value 3,400,000 On March 2, Sentry Corporation splits its stock 2-for-1 and reduces the par value to $10 per share. What is the journal entry to record the forward stock split?

Answer 1

1. Forward Stock Split increases the number of shares outstanding and decreases the par value of a share.

2. Stock splits do not change the balance of any equity account and therefore do not require a journal entry.

• Number of shares outstanding after stock split = 500,000 shares x 2 = 1,000,000 shares

• Par Value of a single share after stock split = $10

• Total par value of stock after stock split = 1,000,000 shares x $10 per share = $10,000,000

Common stock balance after stock split = $10,000,000

• Paid-In Capital excess of par account balance after stock split = $3,400,000