Question

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

  

Common stock ($.50 par value)	$	46,000
Capital surplus		380,000
Retained earnings		828,120
Total owners’ equity	$	1,254,120

  

a-1.	If the company declares a four-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-five 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.)

     

Answer 1

Solution:-

Information given:

Common stock ($.5 par value) = $46,000

Capital surplus =380,000

retained earnings = 828,128

Total owners’ equity = $1,254,120

• Number of common stock outstanding

= total common stock / par value per share

= $46,000 / $.5

= 92,000 shares outstanding

a.)

split ratio = 4/1 = 4

• 1. number of share outstanding after the split

= Outstanding shares before split * Split ratio

= 92,000 * 4

= 368,000 shares

• 2. new par value per share after the split

= Par value before split / split ratio

=$.5 / 4

=$.125 per share

b.)

split ratio = 1/5 = .2

• 1. number of share outstanding after the split

= Outstanding shares before split * Split ratio

= 92,000 * .2

= 18,400 shares

• 2. new par value per share after the split

= Par value before split / split ratio

=$.5 / .2

=$2.5 per share