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What is the effect of a stock split in the balance sheet?

Asked by: Yailen Mihalushkin

asked in category: General Last Updated: 16th April, 2020

What is the effect of a stock split in the balance sheet?

A stock split will not change the general ledger account balances and therefore will not change the dollar amounts reported in the stockholders’ equity section of the balance sheet. (Although the number of shares will double, the total dollar amounts will not change.)

In respect to this, what is the effect of a stock split on assets?

When a stock splits, it has no effect on stockholders’ equity. During a stock split, the company does not receive any additional money for the shares that are created. If a company simply issued new shares it would receive money for these, which would increase stockholders’ equity.

Also, why would you split a stock? A stock split is a corporate action in which a company divides its existing shares into multiple shares. Basically, companies choose to split their shares so they can lower the trading price of their stock to a range deemed comfortable by most investors and increase liquidity of the shares.

In this manner, how do you record a stock split?

The only journal entry needed for a stock split is a memo entry to note that the number of shares has changed and that the par value per share has changed (if the stock has a par value).

Should I hold through a reverse split?

Investors who own a stock that splits may not make a lot of immediate money, but they shouldn’t sell the stock since the split is likely a positive. A reverse split works the opposite way. Those two $5 bills would become one $10 bill. Reverse splits should be met with skepticism.

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