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Which of the following statements is not true about a 2-for-1 split?

a. Total contributed capital increases.
b. The market price probably will decrease.
c. A stockholder with ten shares before the split owns twenty shares after the split.
d. Par value per share is reduced to half of what it was before the split.

1 Answer

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Final answer:

The incorrect statement about a 2-for-1 stock split is 'Total contributed capital increases,' because a stock split is merely a reclassification of shares that does not change the total value of the company.

Step-by-step explanation:

During a 2-for-1 stock split, each original share is divided into two shares, so the number of shares outstanding doubles. Consequently, a stockholder with ten shares before the split will have twenty shares after the split, which is a correct statement denoted as c. Since the number of shares has doubled, it's common for the market price to decrease roughly by half to maintain the overall market capitalization of the company, making statement b also correct.

The par value per share is reduced to half of what it was before the split; if the original par value was $1, after the split, it will be $0.50, confirming that part d of the statement is true. However, the split does not increase total contributed capital because it is a reclassification of shares; therefore, the statement a is not true as the total value of the company does not change, only the number of shares and the price per share are adjusted.

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