Question

Candela Company has retained earnings of $500,000, common stock of $400,000, and total common stockholders’ equity of $1,200,000. It has 200,000 shares of $2 par value common stock outstanding which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its common stock, what will the effect on total common stockholder's equity?

Answer 1

Answer:

Total common stockholder's equity will not be effected after the stock split. In other words, it remains at the total of $1,200,000.

Explanation:

Since this is the stock-split transaction, the total common equity does not change.

What has been changed after the stock split is the increase of outstanding share of the company and the decrease par value of their common share. The change is proportionate in the way that total value of the company common stock's related account remain the same.

In this question, since the stock slit is 2-for-1, par value decreases by one-half and outstanding common share increases double.