Question

On September 1, 2019, Nichole Company's balance sheet indicates there are 1,800,000 shares of $60 par value common shares in the Common Stock account and $1,350,000 in the Additional Paid-in Capital account. There are 3,000,000 shares authorized. On September 2, Nichole splits its stock 2 for 1. How many shares of Nichole common stock are issued and outstanding immediately after the stock split?
a. 4,200,000
b. 12,000,000
c. 3,600,000
d. 900,000

Answer 1

Answer:

The correct option is c. 3,600,000.

Explanation:

A stock split occurs when the board of directors of a company have taken a decision to increase the number of shares outstanding by issuing more shares to current shareholders.

Since Nichole splits its stock 2 for 1, it implies that an additional share is issued for each share held by a shareholder.

Therefore, the number of its common stock issued and outstanding immediately after the stock split can be calculated as follows:

Number common stock after the stock split = Number of in the Common Stock account + Additional share issued .................. (1)

Where;

Number of in the Common Stock account = 1,800,000

Additional share issued = 1,800,000

Substituting the value into equation (1), we have:

Number common stock after the stock split = 1,800,000 + 1,800,000 = 3,600,000

Therefore, the number of its common stock issued and outstanding immediately after the stock split is 3,600,000 shares. Therefore, the correct option is c. 3,600,000.