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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Effective May 1, the shareholders of Baltimore Corporation approved a 2-for-1 split of the company’s common stock and an increase in authorized common shares from 100,000 shares (par value $20 per share) to 200,000 shares (par value $10 per share). Baltimore’s shareholders’ equity items immediately before issuance of the stock split shares were as follows:

Chapter 16, Problem 4MC, Effective May 1, the shareholders of Baltimore Corporation approved a 2-for-1 split of the companys , example  1

What should be the balances in Baltimore’s Additional Paid-in Capital and Retained Earnings accounts immediately after the stock split is effected?

Chapter 16, Problem 4MC, Effective May 1, the shareholders of Baltimore Corporation approved a 2-for-1 split of the companys , example  2

To determine

Identify the balance in Company B’s additional paid-in capital and retired earnings account immediately after the stock split is in effect.

Explanation

Stock Splits:

It is a method of increasing the total number of outstanding shares thereby, reducing the market price of each share, however, keeping the corporation’s total market value constant.

Justification for the incorrect answer:

Option a, b and d:

When the company makes a stock split for 2 for 1, there is decreases in the face value and increase in the number of the shares. Stock split does not require journal entry as it does not have any effect on the assets, liabilities and stockholder’s equity of the company. As a result, stock split will not have any effect on the balances of the additional paid-in capital value and the value retained earnings of the company...

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