Question

The owners' equity accounts for Vidi International are shown here:

Common stock ($.60 par value)	$	45,000
Capital surplus		365,000
Retained earnings		798,120
Total owners’ equity	$	1,208,120

  

a-1.	If the company declares a three-for-one stock split, how many shares are outstanding now? (Do not round intermediate calculations.)
a-2.	What is the new par value per share? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
b-1.	If the company declares a one-for-four reverse stock split, how many shares are outstanding now? (Do not round intermediate calculations.)
b-2.	What is the new par value per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

     

a-1.	New shares outstanding
a-2.	New par value	$	per share
b-1.	New shares outstanding
b-2.	New par value	$	per share

Answer 1

Number of shares outstanding before stock split = Common stock / Par value per share
Number of shares outstanding before stock split = $45,000 / $0.60
Number of shares outstanding before stock split = 75,000

Answer a.

The company declares a 3-for-1 stock split.

New shares outstanding = 75,000 * 3
New shares outstanding = 225,000

New par value per share = $0.60 * (1/3)
New par value per share = $0.20

Answer b.

The company declares a 1-for-4 reverse stock split.

New shares outstanding = 75,000 * (1/4)
New shares outstanding = 18,750

New par value per share = $0.60 * (4/1)
New par value per share = $2.40