A Corporation Has 3 Million Shares of Outstanding Stock Issued

question 17

Multiple Choice

A corporation has 3 million shares of outstanding stock issued at market price of $5.It also has $45 million of retained earnings on its balance sheet.It announces a 2 for 1 stock split on August 1.The market price of the stock on that day is $12 per share.Which of the following would be the implication of this stock split?

• A)Contributed capital will increase by $36 million
• B)Retained earnings will decrease by $36 million
• C)Dividends payable will increase by $36 million
• D)No accounting entry will be made on this announcement.

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Definitions:

Production Budget

A financial plan for the manufacturing departments detailing the quantity of each product to be produced and the resources required.

Sales Budget

An estimation of future sales revenues, often broken down by month or quarter, used for planning and operational purposes.

Ending Inventory

Ending Inventory is the total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting goods sold.

Cash Receipts

The collection of money, including cash, checks, and credit card payments, by a business during a given period.