In: Accounting
Effect of Stock Split
Gino's Restaurant Corporation wholesales ovens and ranges to restaurants throughout the Midwest. Gino's Restaurant Corporation, which had 18,000 shares of common stock outstanding, declared a 3-for-1 stock split.
a. What will be the number of shares
outstanding after the split?
shares
b. If the common stock had a market price of
$144 per share before the stock split, what would be an approximate
market price per share after the split?
$ per share
A corporation, which had 37,000 shares of common stock outstanding, declared a 3-for-1 stock split.
(a) What will be the number of shares
outstanding after the split?
shares
(b) If the common stock had a market price of
$123 per share before the stock split, what would be an approximate
market price per share after the split?
$ per share
(c) Is a journal entry required for a stock
split?
Part 1(a) = Calculation of Total Number of shares after stock Split.
Total outstanding shares = 18000
Stock Split ratio = 3 shares for 1 Shares
Meaning = For 1 share of Gino's restaurent corporation will issue 3 shares.
Total Shares after stock split = 18000*3 = 54000 Shares
Part 1(b) = Total Market Price Before Stock Split = $144 Per share
Total Market Value of corporation = ($144 * 18000) = $2592000
New Market Price After stock split
Particulars | |
Total Market Value (A) | $2592000 |
Total Shares after stock split (B) | 54000 |
Market Price per share after stock split (A/B) | $48 |
Part 2(a) = Calculation of total Number of shares after stock split = 37000* 3 = 111000 Shares
Part 2(b) = Total Market value before stock split = ($123*37000) = $4551000
Market Price per share after stock split
Particulars | |
Total Market Value (A) | $4551000 |
Total Shares after stock split (B) | 111000 |
Market Price Per share after stock split (A/B) | $41 |
Part 2(c) = No Journal Entry required for stock split. But only a memorandum is written in general journal and General ledger account.
Stock split does not effect in amount of total value of stock. Hence journal entry is not required for stock split.
Hence only a memorandum is required for informatory Purpose.