On September 1, Weiss Company has 200,000 shares of $15 par value ($159 market v

Question

On September 1, Weiss Company has 200,000 shares of $15 par value ($159 market value) common stock that are issued and outstanding. Its balance sheet on that date shows the following account balances relating to commonstock:

     Common stock:    $3,000,000

     Paid-in capital in excess of par value     $1,750,000

On September 2,Weiss splits its stock 3-for-2 and reduces the par value to $10 per share.

a.) How many shares of common stock are issues and outstanding immediately after the stock split?

b.) What is the dollar balnce of the common stock account immediately after the stock split?

c.) What is the likely rrason that Weiss Company stock split?

Explanation / Answer

a) No. of shares after stock split = 2,00,000/2*3 = 3,00,000

b) $ balance of common stock after stock split = 3,00,000 * 10 = 30,00,000

c) Likely reason for stock split : The primary reason why companies decide for a stock spit is to increase the liquidity of the shares in stock the market. More liquidity makes the buying and selling of the shares easier for the consumer.

Investors may be concerned whether they are capable of purchasing shares with a high value, but a greater number of shares at a reduced purchase rate per share, after a stock split, makes investors feel comfortable buying the stock. In this way, companies with a higher price may go for a stock split and decrease the rate per share, attracting prospective investors

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