he owners\' equity accounts for Octagon International are shown here. Common sto

Question

he owners' equity accounts for Octagon International are shown here. Common stock ($.40 par value) $ 20,000 Capital surplus 290,000 Retained earnings 648,120 Total owners’ equity $ 958,120 a-1 If Octagon declares a two-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. Round your answer to 3 decimal places (e.g., 32.161).) New par value $ per share b-1 If Octagon declares a one-for-four reverse stock split, how many shares are outstanding now? (Do not round intermediate calculations.) New shares outstanding b-2 What is the new par value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) New par value $ per share

Explanation / Answer

Common stock ($.40 par value) $20,000 Capital surplus 290,000 Retained earnings 648,120 No of Shares Outstanding = $ 20000/$ 0.4 50000 1.a. Octagon declares a two-for-one stock To find the new shares outstanding, we multiply the current shares outstanding times the ratio of new shares to oldshares, so New shares outstanding = 50,000(2 / 1) = 100,000 1.b. The equity accounts are unchanged except that the par value of the stock is changed by the ratio of old shares tonew shares, so the new par value is:New par value = $.40(1 / 2) = $0.200 per share. 2. a. Octagon declares a one-for-four reverse stock split, New shares outstanding = 50,000(1 / 4) = 12500 Shares New Par Value per share = 20000/62500 = $ 0.32

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