Question

Abbott Corporation splits its common stock 4 for 1, when the market value is $40 per share. Prior to the split, Abbott had 50,000 shares of $10 par value common stock issued and outstanding. After the split, the par value of the stock__________.
a. remains the same.
b. is reduced to $2 per share.
c. is reduced to $2.50 per share.
d. is reduced to $10 per share.

Answer 1

Answer:

correct option is c. is reduced to $2.50 per share

Explanation:

given data

market value = $40 per share

common stock issued = $10

shares = 50000

to find out

After the split, the par value of the stock

solution

we know that splits  common stock 4 for 1 that mean the no of outstanding shares in the market now triple that is  each share held by an investor now there will 3

so after split price per share  will be here reduce by dividing 4

and overall value will be same

so Price is reduce here as

par value price = $\frac{10}{4}$

par value price reduce  = $2.50

so correct option is c. is reduced to $2.50 per share