Question

Which of the following statements is true concerning stock splits?

(A) The total number of shares outstanding does not change after the stock split.
(B) Each shareholder will own the same total par amount of stock before and after the split.
(C) Stock splits require journal entries to be recorded.

Answer 1

Answer: Option B

Explanation: In simple words, stock splits refers to the method under which a company issue additional shares to its existing stakeholders as per the basis of their current holdings.

Stock splits are usually done by management for decreasing the stock price when they feel it is overvalued. However stock splits do not result in any kind of other gains they are still very popular in modern business world.

Stock splits result in increase in share holding in number of shares for the shareholders but thee also comes a proportionate increase in the individual share price leading to same amount of shareholding by the holders.