t Company is P1413 Stock split Firm The stockholders equity

t Company is P14-13 Stock split: Firm The stockholders\' equity account of Paper Weight Com follows: Preferred stock Common stock (200,000 shares at $S par) Paid-in capital in excess of par Retained earnings $ 300,000 1,000,000 500,000 820,000 $2,620,000 a. How will the stockholders\' equity account change if Paper Weight Com b. How will the stockholders\' equity account change if Paper Weight Compa c. How d. How will the stockholders\' equity account change if Paper Weight Company e. Considering your answers in parts a to d, what do you notice? Total stockholders\' equity declares a 2-for-1 stock split? declares a 1-for-2 reverse stock split? declares a 3-for-1 stock split? declares a 1-for-4 reverse stock split? pany ny will the stockholders\' equity account change if Paper Weight Company

Solution

a. Current total shares = 200,000 and par value = $5

When two-for-one stock split is announced then shares outstanding will become = 200,000*2/1 = 400,000 shares. New par value = 5*1/2 = 2.5

The equity account will now be:

b. Here the no. of shares = 200,000/2*1 = 100,000. New par value = $5*2/1 = $10

c.  

When two-for-one stock split is announced then shares outstanding will become = 200,000*3/1 = 600,000 shares. New par value = 5*1/3 = 1.67

d.  Here the no. of shares = 200,000/4*1 = 50,000. New par value = $5*4/1 = $20

e. My observation is that in case of stock split the number of shares outstanding increases and par value falls and in case of reverse stock split the number of shares outstanding falls and par value increases.

However the total amount of common stock remains unchnaged at $1,000,000 in all the scenarios.

Preferred stock	300,000.00
Common stock (400,000 shares at $2.5 par)	1,000,000.00
Paid in capital in excess of par	500,000.00
Retained earnings	820,000.00
Total stockholder\'s equity	2,620,000.00