Q18RQ - Horngren'S Financial And Managerial Accounting

Question

What is a stock split?

Step-by-Step Solution

Answer

A stock split is a rise in the number of issued and outstanding shares of stock combined with a proportionate decrease in the par value of the stock.

Step 1: Introduction to topic

A single share of the stock means partial ownership of the corporation in proportionate to the total number of shares. This typically entitles the stockholder to that part of the corporate’s ownership.

Step 2:Stock split definition

A stock split is a decision of the management in which a corporation issues additional shares to those shares holders who hold the shares in the company. Stock dividend is issued in place of providing dividend in cash and cash equivalent, expanding the total by the specified ratio based on the shares they held already.