The owners' equity accounts for Vidi International are shown here: Common stock ($.40 par value)...

The owners' equity accounts for Vidi International are shown here:


Common stock ($.40 par value)	$	40,000
Capital surplus		350,000
Retained earnings		768,120

Total owners’ equity	$	1,158,120

a-1.	If the company declares a two-for-one stock split, how many shares are outstanding now? (Do not round intermediate calculations.)
a-2.	What is the new par value per share? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
b-1.	If the company declares a one-for-four reverse stock split, how many shares are outstanding now? (Do not round intermediate calculations.)
b-2.	What is the new par value per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Solutions

Expert Solution

Total common stock par value = $40,000

Par value of 1 stock = $0.40

Total number of shares outstanding = Total common stock per value/Par value of 1 stock

= 40,000/0.40

= 100,000

Solution a-1. The two-for-one stock split means a person holding one stock would get 2 stocks

Hence, after stock split, the total number of stocks outstanding would be = 100,000 * 2 = 200,000

Solution a-2. Total par value of the stocks = $40,000

New number of shares outstanding = 200,000

The new par value of a stock = Total par value of the stocks/New number of shares outstanding = 40,000/200,000 = $0.200

Solution b-1. A one-for-four reverse stock split means that a person holding four stocks would now get 1 stock

Thus, the total number of outstanding shares would get reduced by 4

New number of shares outstanding = 100,000/4 = 25,000

Solution b-2. The new par value of a stock = Total par value of the stocks/New number of shares outstanding = 40,000/25,000 = $1.600

jeff jeffy answered 1 year ago

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