Question

Exercise 18-20 Stock split [LO18-8]

Kinmi Financial Corporation is the parent company of Kinmi Bank. The company’s stock split was announced in the following wire:

LOS ANGELES (BUSINESS WIRE) Jan. 20—Kinmi Financial Corporation (Nasdaq), announced that the Board of Directors has approved a two-for-one stock split, to be effected in the form of a 100 percent common stock dividend. Kinmi Financial Corporation stockholders of record at the close of business on January 31 will receive one additional share of common stock for every share of common stock then held. Distribution of additional shares issued as a result of the split is expected to occur on or about February 15.

At the time of the stock split, 29.5 million shares of common stock, $.001 par per share, were outstanding.

Required:
1. Prepare the journal entry, if any, that Kinmi recorded at the time of the stock split.
3. If Kinmi's stock price had been $41 at the time of the split, what would be its approximate value after the split (other things equal)?

Answer 1

1.

No journal entry is made at the time of stock split.

Memo- Two for one stock split increases number of shares to 59 million (29.5 x 2) and reduces par value to $0.0005 per share

2.

If Kinmi's stock price had been $41 at the time of the split, its approximate value after the split (other things equal), would be = 41/2

= $20.5

Kindly comment if you need further assistance. Thanks