Question

Robinson's has 24,000 shares of stock outstanding with a par value of $1 per share and a market price of $40 a share. The balance sheet shows $24,000 in the common stock account, $430,000 in the paid in surplus account, and $360,000 in the retained earnings account. The firm just announced a 3-for-1 stock split. How many shares of stock will be outstanding after the split?

Answer 1

Answer:

Find attached question with multiple choices

The third option ,72,000 shares, is the correct answer.

Explanation:

A stock split refers to redenomination of shares by increasing the number of shares and proportionately reducing the number par value per share.

A 3-1 share split means that one prior share now commands three shares while the price of one share is apportioned between the three shares

Robinson now 3/1*24,000 shares=72,000 shares

One previous share was $1 par value but the three new shares would $1/3=$0.33 per share instead of the previous $1 par value