Question

On February​ 1, a corporation has 40000 shares of $ 1 par value common stock issued and outstanding. The corporation also has Additional Paid-in Capital of $ 200000 and Retained Earnings of $ 200000. On February​ 1, the corporation declared a 2-for-1 stock split. After the​ split, what is the total par value of the common stock and the total​ stockholders' equity,​ respectively?

Answer 1

Par value is $0.5

Stockholder's Equity is $440,000

Step-by-step explanation:

Stock split increase the numbers of shares with a specific given ratio but the common equity value remains same that's why the par value of the share decreases with respective ratio.

Before the split the balance in the Common Stock account was:

Common Stock = 40,000 shares x $1 = $40,000

After the split shares outstanding are (in billions):

2 for 1 split will double the Outstanding numbers of shares

Outstanding numbers of shares = 40,000 shares x 2/1 = 80,000 shares

After the split par value is:

Total value of stock remains same after the split

Par value = Total value / Outstanding numbers of shares after split

Par value = $40,000 / 80,000 = $0.5

After the split the balances are

Common Stock $40,000

Additional Paid-in Capital $200,000

Retained Earnings of $200,000

Total Equity $440,000

Balance total equity will remain same as $440,000 before