Question

Titanium Metals Company had 20,000,000 shares of $0.01 par value common stock outstanding which had been sold for an aggregate amount of $300,000,000. The company’s shares are traded on the New York Stock Exchange, which has a minimum listing price of $1 per share. Recently, the company’s common stock has been trading on the exchange below $1 per share, and the exchange has notified the company that its common stock would be delisted in 30 days if the stock price did not rebound above its minimum listing price. In response to this notification, Titanium Metals authorized a 1-for-20 reverse stock split. Following the reverse stock split:a. How many common shares will be outstanding?Answerb. What will be the new par value per share?$Answerc. How will the reverse stock split be recorded in the company’s accounts?Answer-Memorandum/Journal Entry

Answer 1

(a) Common shares outstanding after stock split:

`=(20,000,000)/(20)`

= 1,000,000

(b) New par value per share = 0.01 × 20

= 0.2

(c) Since, there will be no change in the paid up capital after the reverse stock split. So, there is no need to record journal entry, as it will be accounted as the memorandum.