To effect the split, the stockholders approved an increase in the authorized common stock from 10,000,000 to 25,000,000 shares. All references to per-share data and stock option data have been adjusted to reflect this stock split. In February 2018, the Board of Directors approved a 2-for-1 split of the company’s common stock in the form of a 100% stock dividend. While a large stock dividend has the same purpose as a stock split, it is more easily executed than a split when there is a sufficient number of authorized and unissued shares.

Relate Math solutions and answers

In May 2011, Citigroup reverse split its shares 1-for-10 in an effort to reduce its share volatility and discourage speculator trading. The reverse split increased its share price from $4.52 pre-split to $45.12 post-split and every 10 shares held by an investor was replaced with one share. While the split reduced the number of its shares outstanding from 29 billion to 2.9 billion shares, the market cap of the company stayed the same at approximately $131 billion. Corporations usually account for stock dividends by transferring a sum from retained earnings to permanent paid-in capital. The amount transferred for stock dividends depends on the size of the stock dividend.

• A stock split occurs when a company increases the number of outstanding shares with a proportional decrease in the par or stated value.
• The reasoning behind the approach is that it does not alter the total amount of paid-in-capital or retained earnings and thus more clearly reflects the split nature of the stock dividend.
• A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector.
• Stock dividends and stock splits affect the number of common shares outstanding, which in turn influences the earnings per share (EPS) calculation.
• Approval must be obtained not only from the state authority but also from the stockholders through a vote.

How does a company decide when it is going to split its stock?

In particular, the corporation must obtain recording transactions a change in the par value (if any) and an increase in the number of authorized shares. Approval must be obtained not only from the state authority but also from the stockholders through a vote. For example, if a firm’s stock is currently selling for $240 and the firm splits its stock 4 for 1, the price per share will fall to around $60. To continue with the example, let’s say the shares were trading at $20 at the time of the 2-for-1 split; after the split, the number of shares doubles and the shares trade at $10 instead of $20.

Answer

A Stock Split occurs when a company increases the number of outstanding shares with a proportional decrease in the par or stated value. This means that when comparative statements are issued, or 5- and 10-year summaries are presented, the number of common shares on which EPS is in these statements must be retroactively adjusted for these dividends or splits. Instead of going through the legal steps required for a split, the board of directors can simply declare a large stock dividend and distribute the shares to the stockholders. A) Lower the trading price of the stock per share.B) Increase the number of authorized shares.C) Increase legal capital. There are some changes that occur as a result of a split that do affect the short position, but they don’t affect the value of the short position. The biggest change that happens to the portfolio is the number of shares being shorted and the price per Bookstime share.

• They both serve to reduce the market price per share and increase the number of shares issued and outstanding.
• 11 Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.
• Stock dividends have no effect on the total amount of stockholders’ equity or on net assets.
• The purpose of these activities is generally to stimulate activity in the stock by reducing the trading value of each share, with the ultimate goal of increasing the total value of the shares.
• The amount transferred for stock dividends depends on the size of the stock dividend.
• I ask the pizza parlor to double-cut the pizza into 16 slices instead of 8 slices.
• Three times, Apple has conducted a two-for-one stock split (in 1987, 2000, and 2005.) If you had purchased one share of Apple stock at its original issuance on December 12, 1980 ($22 per share market price), you would have 56 shares today.

• Recording small stock dividends A stock dividend of less than 20 to 25% of the outstanding shares is a small stock dividend and has little effect on the market value (quoted market price) of the shares.
• The accounting for a stock dividend is based on the form of the transaction rather than its substance.
• Corporations usually account for stock dividends by transferring a sum from retained earnings to permanent paid-in capital.
• For example, a stock that is subject to a 3-1 split should see its shares initially cut in third.
• Three times, Apple has conducted a two-for-one stock split (in 1987, 2000, and 2005.)  If you had purchased one share of Apple stock at its original issuance on December 12, 1980 ($22 per share market price), you would have 56 shares today.

The choice of one or the other has little impact on the description of the firm’s financial position provided in the balance sheet. As an alternative to debiting Retained Earnings (if allowed by state law), some firms choose to debit Additional Paid-In Capital or Capital in Excess of par. Ask a question about your financial situation providing as much detail as possible.

Part 3: Confidence Going Into Retirement

• If the event is a stock split, there is no change in either Retained Earnings or Common Stock, only a decrease in par value and an increase in the number of issued and outstanding shares.
• Importantly, all shareholders would have 25% more shares, so the percentage of the total outstanding stock owned by a specific shareholder is not increased.
• After a split, the stock price will be reduced since the number of shares outstanding has increased.
• Immediately after the distribution of a stock dividend, each share of similar stock has a lower book value per share.

Each transaction rearranges existing equity, but does not change the amount of total equity. When a stock splits, it can also result in a share price increase following a decrease immediately after the split. Since many small investors think the stock is now more affordable and buy the stock, they end up boosting demand and drive up prices. Another reason for the price increase is that a stock split provides a signal to the market that the company’s share price has been increasing and people assume this growth will continue in the future, and again, lift demand and prices.