Question

The shareholders’ equity accounts for Hexagon International are shown here: Common stock ($1 book value) $ 30,000 Capital surplus 185,000 Retained earnings 627,500 Total shareholders’ equity $ 842,500

a-1. Hexagon declares a four-for-one stock split. How many shares are outstanding now? New shares outstanding
a-2. Hexagon declares a four-for-one stock split. What is the new par value
New par value $
b-1. Hexagon declares a one-for-five reverse stock split. How many shares are outstanding now?
New shares outstanding
b-2. Hexagon declares a one-for-five reverse stock split. What is the new par value per share? (Round the final answer to 2 decimal places. Omit $ sign in your response.)
New par value $

Answer 1

In a four-for-one stock split, the number of shares outstanding increases by four times. The par value of the shares does not change in a stock split. In a one-for-five reverse stock split, the number of shares outstanding decreases by five times. The par value of the shares does not change in a reverse stock split.

Step-by-step explanation:

a-1. In a four-for-one stock split, the number of shares outstanding increases by four times. So, if we start with x number of shares, after the split, there will be 4x shares outstanding.

a-2. The par value of the shares does not change in a stock split. So, the new par value per share will remain the same as the old par value, which is $1.

b-1. In a one-for-five reverse stock split, the number of shares outstanding decreases by five times. So, if we start with x number of shares, after the reverse split, there will be x/5 shares outstanding.

b-2. The par value of the shares does not change in a reverse stock split. So, the new par value per share will remain the same as the old par value, which is $1.