On May 31 2008, Donald Co. has 100,000 shares of $9 par value common stock issue

Question

On May 31 2008, Donald Co. has 100,000 shares of $9 par value common stock issued and outstanding. The balance sheet reports account balances as follows (excerpts only):
Common stock: $ 900,000
Paid in capital in excess of par value: 2,000,000

On June 2, the company splits its stock 2-for-1.

a. How many shares of common stock are issued and outstanding immediately after the stock split? What is the par value of common stock after the split?
b. What is the balance of common stock account immediately after the stock split?
c. What is the balance in Paid in capital (in excess of par value) after the stock split?

Explanation / Answer

Stock split does not affect the value of common stock in total as only the number of shares increase after the split.

1. Number of common stock shares issued and outstanding immediately after the stock split – 200,000. Par value of common stock after the split - $ 4.5 (the par value per share decreases in the same
   ratio with a stock split);
2. Balance of common stock account immediately after the stock split – Same as before, i.e. $900,000 (200,000 * 4.5);
3. Balance in Paid in capital (in excess of par value) after the stock split – Same as before, i.e. $ 2,000,000 

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