Question

Titanium Metals Company had 25,000,000 shares of $0.05 par value common stock outstanding which had been sold for an aggregate amount of $300,000,000. The company's shares are traded on the New York Stock Exchange, which has a minimum listing price of $1 per share. Recently, the company's common stock has been trading on the exchange below $1 per share, and the exchange has notified the company that its common stock would be delisted in 30 days if the stock price did not rebound above its minimum listing price. In response to this notification, Titanium Metals authorized a 1-for-10 reverse stock split. Following the reverse stock split:

a. How many common shares will be outstanding?

Answer

b. What will be the new par value per share?

c. How will the reverse stock split be recorded in the company’s accounts?

Answer 1

a.

1 for 10 reverse stock split implies that 10 existing shares will be converted into 1 share.

Number of outstanding shares before stock split = 25,000,000

Number of outstanding shares after reverse stock split = 25,000,000/10

= 2,500,000

b.

Par value of 1 share before stock split = $0.05

Par value of 1 share after reverse stock split = 0.05 x 10

= $0.50

c.

There is no journal entry made for stock split. Only the number of outstanding shares and par value of share changes due to stock split.

Kindly comment if you need further assistance.

Thanks‼!