Yanama Ltd. has 170,000 common shares outstanding with a carrying value of $16 per share. Yanama declares a 1-for-5 reverse stock split.
a) How many shares are outstanding after the split?
b) What is the carrying value per share after the split?
c) What is the total carrying value after the split?
d) What journal entry is necessary to record the split?
Hi, so I got the answer for c) which is 2,720,000 and d) which is no entry.
However, I needed help with the first two. Thanks.
I thought a) was 850,000 but its wrong apparently.
To determine the number of shares outstanding after a reverse stock split, you need to divide the original number of shares by the reverse stock split ratio.
In this case, the reverse stock split ratio is 1-for-5, which means that for every 5 shares held, the shareholder will receive 1 share after the split. Therefore, to calculate the new number of shares outstanding after the split:
a) Divide the original number of shares by the reverse stock split ratio:
New number of shares outstanding = Number of shares before the split / Reverse stock split ratio
New number of shares outstanding = 170,000 shares / 5
New number of shares outstanding = 34,000 shares
So, the correct answer for a) is 34,000 shares.
Moving on to b) - the carrying value per share after the split can be calculated by dividing the total carrying value before the split by the new number of shares outstanding after the split.
b) Calculate the carrying value per share after the split:
Carrying value per share = Total carrying value before the split / New number of shares outstanding after the split
Carrying value per share = $16 / 34,000
Carrying value per share = $0.47 (rounded to two decimal places)
So, the correct answer for b) is $0.47 per share.
To summarize:
a) The number of shares outstanding after the split is 34,000.
b) The carrying value per share after the split is $0.47.
c) The total carrying value after the split is $2,720,000.
d) No journal entry is necessary to record the reverse stock split because there is no change in the total equity of the company.