On July 1, year 1, Golden Corp. split its common stock 5-for-1 when the market value was $100 per share. Prior to the split, Golden had 10,000 shares of $10 par value common stock issued and outstanding. After the split, the par value of the stock
A. Remained at $10.
B. Was reduced to $8.
C. Was reduced to $5.
D. Was reduced to $2.
Answer:D
This answer is correct. A stock split results in an increase or decrease in the number of shares outstanding and a corresponding decrease or increase in the par value per share. A 5-for-1 split in this case would increase the shares outstanding to 50,000 and decrease the par value per share to $2 ($10/5). Total par value is not affected by a stock split (10,000 × $10 before split; 50,000 × $2 after split).