On January 1, 2015, WVC split its common shares 4 for 1 when the market value was $80 per share.Prior to the split, WVC had 50,000 common shares issued and outstanding (average issue price $12 per share).After the split, the average issue price of the shares was reduced:
A)To $3 per share.
B)By $3 per share.
C)To $4 per share.
D)No change in the par value.
E)To $2.40 per share.

Question

Quizplus · Accepted Answer

DA stock split increases the number of shares and decreases the price per share without affecting the total market value of the shares. In this case, a 4 for 1 split means each share is split into 4, so the price per share after the split is $80 / 4 = $20 per share. However, the average issue price (or par value) is a different concept, typically not affected by market value changes due to stock splits. The average issue price remains the same, reflecting the original value at which shares were issued. Therefore, the average issue price remains $12 per share, indicating no change in the par value, and the market misunderstanding often leads to confusion between market price and par value.

On January 1, 2015, WVC Split Its Common Shares 4