What effect will a two-for-one stock split have on the following items found on a firm's financial statements?
a) Earnings per share $4.20
b) Total equity $10,000,000
c) Long-term debt $4,300,000
d) Additional paid-in capital $1,534,000
e) Number of shares outstanding 1,000,000
f) Earnings $4,200,000
a) Earnings per share: The earnings per share will be halved after the stock split. So, it will be $2.10.
b) Total equity: The total equity will remain the same after the stock split. It will still be $10,000,000.
c) Long-term debt: The long-term debt will remain the same after the stock split. It will still be $4,300,000.
d) Additional paid-in capital: The additional paid-in capital will remain the same after the stock split. It will still be $1,534,000.
e) Number of shares outstanding: The number of shares outstanding will double after the stock split. It will become 2,000,000.
f) Earnings: The earnings will remain the same after the stock split. It will still be $4,200,000.
A two-for-one stock split will have the following effects on the items found on a firm's financial statements:
a) Earnings per share ($4.20): The stock split will not affect the earnings per share. However, the number of shares outstanding will double, resulting in a lower earnings per share value ($4.20 / 2 = $2.10 per share).
b) Total equity ($10,000,000): The stock split will not affect the total equity. Total equity represents the original investment in the company, and the stock split does not change the total value of the company.
c) Long-term debt ($4,300,000): The stock split will not have any direct impact on the long-term debt. The debt remains the same, and the stock split does not affect the company's liabilities.
d) Additional paid-in capital ($1,534,000): The stock split will not affect the additional paid-in capital. This represents the amount paid by shareholders above the stock's par value. The stock split does not change the total amount of capital invested by shareholders.
e) Number of shares outstanding (1,000,000): A two-for-one stock split doubles the number of shares outstanding. Therefore, after the stock split, the number of shares will be 2,000,000.
f) Earnings ($4,200,000): The stock split will not have any direct impact on the earnings. The earnings represent the company's profits, which are not affected by the stock split.