Question

Analyzing, Identifying, and Explaining the Effects of a Stock Split

On March 1 of the current year, Xie Company has 450,000 shares of $20 par value common stock that are issued and outstanding. Its balance sheet shows the following account balances relating to common stock.

Common stock	$9,000,000
Paid-in capital in excess of par value	3,450,000

On March 2, Xie Company splits its common stock 2-for-1 and reduces the par value to $10 per share.

Required
a. How many shares of common stock are issued and outstanding immediately after the stock split?
Answer

b. What is the dollar balance in its common stock account immediately after the stock split?
$Answer

c. What is the dollar balance in its paid-in capital in excess of par value account immediately after the stock split?
$Answer

Answer 1

a) Answer:   900,000 shares of commonn stock issued and outstanding immediately after stock split

b) Answer:   $9,000,000 is the dollar balance in the common stock account immediately after stock split

c) Answer : $3,450,000 is the dollar balance in its paid in capital in excess of par value account immediately after stock split

explanation

company splits its common stock 2 for 1 and reduces the par value to $10 per share  

so ....

a)no of issued and outstanding shares after stock split = 450,000*2= 900,000

b) dollar balance in the common stock account = par value after split * outstanding shares after split

$10 * 900,000= $9,000,000

c) paid in capital in excess of par value is the same amount ,it doest changed for the dollar value =$3,450,000

note : share split is the process of increasing the outstanding shares and decreasing the par value of share .

here in the stock split no of outstanding shares will be changed and par value will be changed , but dollar balance in the common stock account and paid in capital in excess will not changed , they remains the same