Andromeda Industries had 600,000 shares of common stock with a $9 par value and
ID: 2422610 • Letter: A
Question
Andromeda Industries had 600,000 shares of common stock with a $9 par value and retained earnings of $180,000 at January 1, 2011. In 2011, the stock was split 3 for 1. In 2010, earnings per share were $1.80. Which of the following would not result from the stock split?
a. The new shares issued and outstanding would total 900,000.
b. The total amount in the capital stock account (dollar valuation) would remain the same.
c. The par value of each share would become $3.
d. There is no effect on total stockholder’s equity.
e. Retained earnings would remain unchanged.
Explanation / Answer
New Share3:1 ie 30000*3 =900,000 Shares
Stock split is the issuance of additional shares to shareholders in accordance with their ownership percentage that results in the reduction in a par (or stated) value per share.
Stockholders' equity represents the capital portion of a company's balance sheet. The stockholders' equity can be calculated from the balance sheet by subtracting a company's liabilities from its total assets. Although stock splits affect the way shares are allocated and the company share price, stock splits and stock dividends do not affect stockholders' equity.
When a company declares a stock Split, it issues additional shares as a form of payment. A stock split reassigns the amount of shares from its retained earnings to its paid-in capital account. In a stock dividend, no money leaves the company, but its shares become more marketable.
So the Answer for the Question is b) as it effects to change of Common stock vale due to increase in stock on splitt