Q11SE_2 - Horngren'S Financial And Managerial Accounting

Question

Accounting for a stock split

Decor and More Imports recently reported the following stockholders’ equity:

Common Stock—\(1 Par Value; 490,000,000 shares

 authorized, 119,000,000 shares issued and outstanding

Paid-In Capital:

654,000,000

\) 119,000,000

267,000,000

Retained Earnings

Total Stockholders’ Equity \( 921,000,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 148,000,000

Total Paid-In Capital

Suppose Decor and More split its common stock 2-for-1 in order to decrease the market price per share of its stock. The company’s stock was trading at \)17 per share immediately before the split.

Requirements

2. Were the account balances changed or unchanged after the stock split?

Step-by-Step Solution

Answer

Common stock after stock splitchanged to $238,000,000

Step 1: Basic Introduction-

A stock split decreases the market price of a shares by increasing the quantity of shares that are outstanding by issuing more shares to the present shareholders.

Step 2: The account balances changed after the stock split -

$\begin{array}{c}\text{Comman stock after split}=\text{Paid in capital}\times \text{Split}\\ =119,000,000\times \frac{2}{1}\\ =\$238,000,000\end{array}$

 

So the balanced were changed after the split.