Question

Quiz 2 Sneak Peek Question A company has 20 million common shares authorized and 2.5 million shares isaed. The par value is SI per share and the marketprice s $30 when the company declares a 4 for-1 stock split, which of the following is correct? 6)-- A) For every one share of stock owned, a shareholder will receive four shares and will now own 5 shares of stock. B) The company will be unable to declare a 4-for-1 split because it does not have enough authorized shares to issue. C) There will be a transfer of $2.5 million from retained eanings to the common stock account D) The shares issaed and outstanding will all quadruple while the par value will be reduced to $0.25 per share. Send me an email if you'd like to check your answer. 4 7 2 3 6 8 9

Answer 1

D. The shares issued and outstanding will all quadruple while the par value will be reduced to $ 0.25 per share.

A stock split does not impact the book value of total stockholders' equity.

Book value of common shares issued and outstanding before the stock split = 2,500,000 x $ 1 = $ 2,500,000.

Book value of common shares issued and outstanding after the stock split = 2,500,000 x 4 x $ 0.25 = $ 2,500,000.