Question

On July 1, Black Corporation had 200,000 shares of $10 par common stock outstanding. The market price of the stock was $12 per share. On the same date, Black declared a 1 for 2 reverse stock split. The par value of the stock was increased from $10 to $20, and one new $20 par share was issued for each two $10 par shares outstanding. Immediately before the reverse stock split, Black's Paid-in capital--excess of par account equaled $4,000,000. What should be the balance in Black's Paid-in capital--excess of par account immediately after the reverse stock split?

Answer 1

$4000000

Explanation:

Given data :

200000 shares at $10 par common stock outstanding

market price of stock = $12 per share

increased par value of stock = $10 ( $20)

Black's paid-in capital--excess of par account = $4000000.

The balance in Black's paid-in capital--excess of par account immediately after the reverse stock spit will be $4000000 because the increased par value of stock from $10 to $20 will be reversed back immediately after the reverse stock hence the paid-in capital--excess before stock split = paid-in capital --excess immediately after reverse stock split