Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Stock Splits

Financial Accounting

12. Stockholders' Equity

Stock Splits

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Multiple Choice

A frequent reason for a stock split is to:

Raise additional capital for the company

Increase the total equity of the company

Decrease the number of shares outstanding

Reduce the market price per share to make the stock more affordable to investors

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Verified step by step guidance

Understand the concept of a stock split: A stock split is a corporate action where a company divides its existing shares into multiple shares to boost liquidity. It does not change the total equity or the value of the company; it simply increases the number of shares while reducing the price per share proportionally.

Analyze the options provided: Evaluate each option to determine its relevance to the purpose of a stock split. For example, raising additional capital is typically achieved through issuing new shares, not a stock split.

Focus on the correct purpose: The primary reason for a stock split is to reduce the market price per share, making the stock more affordable to a broader range of investors. This can increase trading activity and improve marketability.

Eliminate incorrect options: Decreasing the number of shares outstanding is the opposite of what happens in a stock split. Similarly, increasing total equity is not a direct result of a stock split, as the company's overall value remains unchanged.

Conclude with the correct answer: The correct purpose of a stock split is to reduce the market price per share, thereby making the stock more accessible to investors and potentially increasing its attractiveness in the market.