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

What is the primary reason for declaring a stock split?

To reduce the market price per share and make the stock more affordable to a wider range of investors

To pay dividends to shareholders

To increase the company's net income

To increase the total equity of the company

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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 total value of the company or the shareholders' equity.

Analyze the primary reason for declaring a stock split: The main goal is to reduce the market price per share, making the stock more affordable to a broader range of investors, which can increase trading activity and market accessibility.

Evaluate the incorrect options: Paying dividends to shareholders is unrelated to a stock split, as dividends are a distribution of profits. Increasing the company's net income is not a direct result of a stock split, and a stock split does not increase the total equity of the company since it does not affect the company's overall value.

Relate the correct answer to the financial accounting perspective: A stock split adjusts the number of shares outstanding and the price per share proportionally, ensuring the company's market capitalization remains unchanged while improving affordability and liquidity.

Conclude the reasoning: The correct answer is 'To reduce the market price per share and make the stock more affordable to a wider range of investors,' as this aligns with the primary purpose and financial implications of a stock split.