Asked by Monikka Ramkissoon on Jul 21, 2024
Verified
The Retail Outlet has 6,000 shares of stock outstanding with a book value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the retained earnings account balance be after the split?
A) $117,000
B) $234,000
C) $351,000
D) $410,000
E) $468,000
Stock Split
involves dividing a company's existing stock into multiple shares to boost the liquidity of the shares, although the overall value of the company does not change.
Retained Earnings
The portion of a company’s profits that is kept or retained for reinvestment in the business, rather than being paid out as dividends to shareholders.
Book Value
The net value of a company's assets minus its liabilities and intangible assets, as recorded on the balance sheet.
- Attain an understanding of the mechanism and financial significance of stock splits and their influence on share price within the market.
Verified Answer
JW
jessica wynneJul 26, 2024
Final Answer :
B
Explanation :
A stock split does not affect the retained earnings account balance. Therefore, the retained earnings will remain at $234,000 after the 2-for-1 stock split.
Learning Objectives
- Attain an understanding of the mechanism and financial significance of stock splits and their influence on share price within the market.