Question

The owners' equity accounts for Southern Lights International are shown here: Common stock ($.40 par value) Capital surplus Retained earnings 25,000 300,000 668,120 993,120 Total owners' equity a-1. If the company declares a four-for-one stock split, how many shares will be outstanding? (Do not round intermediate calculations.) New shares outstanding a-2. What is the new par value per share? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g. 32.161.) $ New par value per share b-1. If the company declares a one-for-five reverse stock split, how many shares are outstanding now? (Do not round intermediate calculations. New shares outstanding

Answer 1

1. Current outstanding shares = $25000 / 0.40 = 62500 shares

4 for 1 split will increase o/s shares to 62500 × 4= 250,000 shares

2. New par value per share = $0.40 /4 = $0.10

3. 1 for 5 Reverse stock split will decrease shares to 250000/5 = 50,000 shares.

4. New par value per share = $0.10 × 5 = $0.50