How many shares of common stock would be outstanding immediately after a 4-for-1 forward split? Several accounts and amounts from Favorite Franchise, Inc.'s accounting records appear below:Preferred stock, 7%, $40 par, 600 shares authorized, cumulative,300 shares issued$ 9,600Common treasury stock, 200 shares at costAdditional paid-in capital-preferredRetained earnings16,00012,80019,200Common stock, $4 par value, authorized 4,000 sharesAdditional paid-in capital – common3,20036,800The market price of the stock on December 31 was $20 per share. All the shares of common stockwere issued on May 1, two years earlier.

Answered: How many shares of common stock would…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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How many shares of common stock would be outstanding immediately after a 4-for-1 forward split?

Several accounts and amounts from Favorite Franchise, Inc.'s accounting records appear below:
Preferred stock, 7%, $40 par, 600 shares authorized, cumulative,
300 shares issued
$ 9,600
Common treasury stock, 200 shares at cost
Additional paid-in capital-preferred
Retained earnings
16,000
12,800
19,200
Common stock, $4 par value, authorized 4,000 shares
Additional paid-in capital – common
3,200
36,800
The market price of the stock on December 31 was $20 per share. All the shares of common stock
were issued on May 1, two years earlier.

Expert Solution

Step 1

Forward split:

Under this type of stock split, the number of shares held by a shareholder after the stock split are more than the number of shares before stock split. This generally means, when a company issues a forward stock split, it is basically increasing the number of shares outstanding without impacting the market capitalization.

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