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Stock Splits quiz #1 Flashcards

Stock Splits quiz #1
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  • What is a stock split and how does it affect the number of shares and par value per share?
    A stock split increases the number of shares outstanding and decreases the par value per share, but does not affect total stockholders' equity.
  • How is a stock split typically expressed, and what does a '2 for 1' stock split mean?
    A stock split is expressed as 'X for Y' (e.g., 2 for 1), meaning each existing share is split into X/Y new shares. A 2 for 1 split means each share becomes two shares.
  • What is the effect of a 2 for 1 stock split on the market price and par value of a company's shares?
    After a 2 for 1 stock split, both the market price and par value per share are halved.
  • How do you calculate the new number of shares outstanding after a stock split?
    Multiply the old number of shares outstanding by the split ratio (X/Y) to get the new number of shares.
  • Does a stock split require a journal entry in the accounting records? Why or why not?
    No journal entry is required for a stock split because it does not affect total stockholders' equity; only a memo may be created to reflect the changes.
  • If a company has 250,000 shares at $0.20 par value and a $40 market price, what will be the new shares outstanding, par value, and market price after a 2 for 1 stock split?
    After a 2 for 1 split, there will be 500,000 shares at $0.10 par value and a $20 market price.
  • What is the purpose of using a split ratio when analyzing stock splits, and how is it applied to calculate new share and price values?
    The split ratio helps determine the new number of shares (multiply old shares by the ratio) and the new par value and market price (divide old values by the ratio).
  • What happens to the number of shares outstanding and the par value per share after a stock split?
    A stock split increases the number of shares outstanding and decreases the par value per share, but does not affect total stockholders' equity.
  • How do you calculate the new number of shares and the new par value after a 2 for 1 stock split?
    Multiply the old number of shares by 2 to get the new shares, and divide the old par value by 2 to get the new par value.
  • Does a stock split require a journal entry in the accounting records, and why?
    No journal entry is required for a stock split because it does not affect total stockholders' equity; only a memo may be created to reflect the changes.