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A corporation has 10,000 shares outstanding at $16 par with a market price of $20, then declares a 4-for-1 stock split. What are the new par value per share and number of shares outstanding?
A$4 par and 2,500 shares
B$64 par and 2,500 shares
C$5 par and 40,000 shares
D$4 par and 40,000 shares
Answer & Solution
Correct answer: D. $4 par and 40,000 shares
1. A 4-for-1 split multiplies the share count by 4: $10{,}000 \times 4 = 40{,}000$ shares.
2. Par value is divided by 4: $\$16 \div 4 = \$4$ per share.
3. (Market price also drops to $20 \div 4 = \$5$, which is the trap in option C.)
4. Result: $4 par and 40,000 shares outstanding.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.8 "Stock Splits", p.257_
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