A Company Has 10 Million Common Shares Authorized and 2

question 12

Multiple Choice

A company has 10 million common shares authorized and 2.5 million shares issued. The par value is $1 per share and the market price is $30 when the company declares a 4-for-1 stock split. Which of the following is correct?

• A) There will be a transfer of $2.5 million from retained earnings to contributed capital.
• B) For every one share of stock owned, a shareholder will receive four shares and will now own 5 shares of stock.
• C)The shares issued and outstanding will all quadruple while the par value will be reduced to $.25 per share.
• D)The company will be unable to declare a 4-for-1 split because it does not have enough authorized shares to issue.

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Definitions:

Emulsification

The process by which large fat droplets are broken down into smaller, uniformly distributed particles, usually aided by substances called emulsifiers.

Lipid Digestion

The process of breaking down fats into fatty acids and glycerol, mainly occurring in the small intestine.

Surface Area

The total area of the surface of a three-dimensional object.

Active Transport

The movement of molecules across a cell membrane from a lower to a higher concentration, requiring energy in the form of ATP.