Question

Kinmi Financial Corporation is the parent company of Kinmi Bank. The company’s stock split was announced in the following wire:

LOS ANGELES Jan. 20 BUSINESS WIRE—Kinmi Financial Corporation (Nasdaq), announced that the Board of Directors has approved a two-for-one stock split, to be effected in the form of a 100 percent common stock dividend. Kinmi Financial Corporation stockholders of record at the close of business on January 31 will receive one additional share of common stock for every share of common stock then held. Distribution of additional shares issued as a result of the split is expected to occur on or about February 15.

At the time of the stock split, 25.5 million shares of common stock, $0.001 par per share, were outstanding.

Required:
1. Prepare the journal entry, if any, that Kinmi recorded at the time of the stock split.
3. If Kinmi’s stock price had been $37 at the time of the split, what would be its approximate value after the split (other things equal)?

Answer 1

Answer: 1) Preparation of Appropriate Journal Entries
Date	Account Titles and explanation	Debit (in $)	Credit (in $)
Jan 20.	Paid-in-Capital In excess of Par	$25,500
	Common Stock                 ($25.5 million shares * $0.001)		$25,500
	(To record the additional shares given to the common share holders towards Stock dividend)
2) Calculation of Approximate value after Split.
Stock price at the time of Split                   =            $37 Value of share   =   Half price of the Share (2 for 1) =    $37 / 2   = $18.50       => Approximate Value after Split     =    $18.50