Question

On June 13, the board of directors of Siewert Inc. declared a 2-for-1 stock split on its 20 million, $5.00 par, common shares, to be distributed on July 1. The market price of Siewert common stock was $16 on June 13. Prepare a journal entry that summarizes the declaration and distribution of the stock split if it is to be effected in the form of a 100% stock dividend. What is the par per share after the split

Answer 1

Answer:

a. No journal entry is required.

b. Par per share after the split = $2.50

Explanation:

a. Prepare a journal entry that summarizes the declaration and distribution of the stock split if it is to be effected in the form of a 100% stock dividend.

No journal entry is required for this because the total value of the shares has not changed due to 2-for-1 stock split.

This is because the 2-for-1 stock split has only increased the number of shares outstanding by 2, but at the same time reduces the par value of the share by half making the total value of the shares to remain the same.

b. What is the par per share after the split.

As explained in a above, the effect of 2-for-1 stock split is to reduce the par value of the share by half.

Therefore, the par per share after the split can be calculated as follows:

Par per share after the split = Par per share before the split / 2 = $5 / 2 = $2.50