Question

"icrosoft announced a 2 for 1 stock split. Before the split they had 5.4b shares outstanding and par value was $0.0000125. Before the split the balance in the Common Stock account was: $ After the split shares outstanding are (in billions): After the split par value is: After the split the balance in Common Stock is $"

Answer 1

Answer: Balance before Split - $67,500

After Split No. of shares - 10.8 billion

After Split Par Value - $0.00000625

After Split Balance - $67,500

Explanation:

Microsoft had 5.4b shares outstanding and par value was $0.0000125.

Before the split the balance in the Common Stock account was:

We will multiply the no. Of shares outstanding by the par value.

= 5.4 billion * $0.0000125

= $67,500

After the split shares outstanding are (in billions):

The split was a 2 for 1 split meaning the shares doubled. That would mean,

= 5.4b * 2

= 10.8 billion shares outstanding

After the split par value is:

It was a 2 for 1 split. That would mean that prices had to have halved. Calculating therefore,

= $0.0000125/2

= $0.00000625

After the split the balance in Common Stock is

= 10.8 billion shares * $0.00000625

= $67,500

Balance remained the same showing that total equity remains the same. Only no of shares and price changes.

Answer 2

Answer:

Before the split the balance in the Common Stock account was: $67,500

After the split shares outstanding are (in billions): 10.8

After the split par value is: $0.00000625

After the split the balance in Common Stock is $67,500

Explanation:

Stock split increase the numbers of shares with a specific given ratio but the common equity value remains same that's why the par value of the share decreases with respective ratio.

Before the split the balance in the Common Stock account was:

Common Stock = 5,400,000,000 shares x 0.0000125 = $67,500

After the split shares outstanding are (in billions):

2 for 1 split will double the Outstanding numbers of shares

Outstanding numbers of shares = 5.4b shares x 2/1 = 10.8b shares

After the split par value is:

Total value of stock remains same after the split

Par value = Total value /  Outstanding numbers of shares after split

Par value = $67,500 / 10,800,000,000 = $0.00000625

After the split the balance in Common Stock is $"

Balance in the common stock will remain same as $67,500