A Company Has 10 Million Common Shares Authorized and 2

question 11

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 the common stock account.
• 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 $0.25 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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