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

Which of the following statements about stock splits is correct?

A stock split requires the payment of cash dividends to shareholders.

A stock split results in a decrease in total shareholders' equity.

A stock split increases the total market value of a company.

A stock split reduces the par value per share but increases the number of shares outstanding.

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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 increases the number of its outstanding shares by dividing its existing shares into multiple shares. This does not change the total value of shareholders' equity or the market capitalization of the company.

Analyze the impact on par value per share: In a stock split, the par value per share is reduced proportionally to the increase in the number of shares. For example, in a 2-for-1 stock split, the par value per share is halved.

Examine the effect on the number of shares outstanding: A stock split increases the number of shares outstanding. For instance, in a 2-for-1 stock split, each shareholder receives an additional share for every share they own, doubling the total number of shares.

Clarify the impact on shareholders' equity: A stock split does not affect the total shareholders' equity. The equity remains the same because the increase in the number of shares is offset by the proportional decrease in the par value per share.

Evaluate the market value of the company: A stock split does not inherently increase the total market value of the company. The market value per share typically adjusts proportionally to the split, leaving the overall market capitalization unchanged.