Question

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

  

Common stock ($.60 par value)	$	37,500
Capital surplus		325,000
Retained earnings		718,120
Total owners’ equity	$	1,080,620

  

a-1.	If the company declares a two-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.)

     

Answer 1

Before stock split:

Number of shares outstanding = Common stock / Par value per share
Number of shares outstanding = $37,500 / $0.60
Number of shares outstanding = 62,500

Answer a.

If the company declares a two-for-one stock split, then 2 stocks are issued for each stock. This will double the number of stock outstanding and half the par value per share.

Number of shares outstanding = 2 * 62,500
Number of shares outstanding = 125,000

Par value per share = $0.60 / 2
Par value per share = $0.30

Answer b.

Number of shares outstanding = 62,500 / 4
Number of shares outstanding = 15,625

Par value per share = $0.60 * 4
Par value per share = $2.40