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

The principal reason for a company having a stock split is to:

Reduce the market price per share to make the stock more affordable to a wider range of investors.

Distribute cash dividends to shareholders.

Increase the total equity of the company.

Increase the total number of shares outstanding to raise additional capital.

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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 the liquidity of the stock. It does not change the company's overall market capitalization or equity.

Analyze the impact of a stock split on the market price per share: When a stock split occurs, the price per share is reduced proportionally to the split ratio, making the stock more affordable to a broader range of investors.

Clarify the purpose of a stock split: The primary reason for a stock split is to make the stock more accessible to investors by lowering the price per share, not to distribute dividends, increase equity, or raise additional capital.

Evaluate the incorrect options: Distributing cash dividends, increasing total equity, or raising capital are not objectives of a stock split. These actions are achieved through other corporate strategies like issuing new shares or declaring dividends.

Conclude the correct answer: The principal reason for a stock split is to reduce the market price per share to make the stock more affordable to a wider range of investors.