Suppose Pier 1 Imports has common shares, 500,000 shares authorized, and 100,000 shares issued and outstanding. The book value of the common shares is $500,000. The company decided to split its common shares 2-for-1 to decrease the market price of its shares. The company’s shares were trading at $20 immediately before the split. The common shares account balance was $100,000 prior to the split.
1. Show how the common shareholders’ equity would appear in the shareholders’ equity section of Pier 1 Imports’ balance sheet after the stock split.
2. Which account balances changed after the stock split? Which account balances were unchanged?