Stock Split question?
Question:
Answer:
Stocksplits don't do anything to the balance of Common Stock or equity account. Stock dividends do change the stock outstanding though.
The total amount of shares raise proportionately, like if there are 1 million shares then a 2 for 1 split would result in 2 million shares or a 3 for 1 would result in 3 million shares.
Accordingly, the price adjusts by the same amount on the next trading day for example a 2 for 1 split on a $100 stock will open next day at $50 and so on.
2:1 splits are easiest to understand, since you simply double things. (this sounds like a ? to a business math problem, and you probably don't need this extra info, but...)
A 2:1 is a foreward split, which is good.
If a stock has a reverse split (1:2), that is bad. A reverse split is what happens when a company is on its last leg. A foreward split is a good sign. It means the share price has increased, and they do it to attract new investors. Take Best Buy and Circuit City. CC is $23 a share, and BBY is $50 a share. BBY looks much more expensive, and often times investors would rather buy 100 shares of CC (for $2,300) than 50 shares of BBY (for $2,500) Simply because they can get 100. Buying under 100 is called 'odd lot.' I often times get letters from companies asking me to either buy more or sell. Example: I got a letter from Radio Shack a little while back because I only own 25 shares. Supposedly it costs *them* money because I only own 25 shares, and they either want me to sell 25, or buy 75 more.
Anyways... a stock split is pretty much for psychological reasons. It is the same as going to the bank and giving the teller, and asking for 2 $50's back. You still have the same amount, and nothing has changed.
If a company splits 2:1, it effects options/warrants, etc... just like it effects the stock.
Also, Google and Yahoo basically do the same thing. But how many people will pay $500 for 1 share of GOOG? Yahoo costs only $25. Higher prices discourage additional investment.
The Balance of Common Stock should be adjusted by the same ratio as the stock split.
(boy, I apparently had nothing to do tonight since I rambled on like that...)
Should be no effect. If I understand your question, you are asking an accounting question...how much does the common stock account increase for a split. Since no additional capital is contributed, or paid out, it should have no effect.
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