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Stock Split Questions

What is a stock split?

When the share holders of a company receive multiples of the current stocks that they own, it is called a stock split. For example, if an individual owns 100 shares in the company, and a split takes place 2 for 1, then the individual will start owning 200 shares. However, the value of these shares will not double. Instead, each of the shares will be at half of what the price was before the split. Most companies split their shares to enable the investors to buy shares in bulk. Stock split can cause many questions, Experts can answer these questions.

Would an entry be made in the accounting books if a split of company stocks takes place?

In most situations, from the accounting point of view, no entry may be made if a stock split took place. However, sometimes, if there is no change in the par value due to the split, then the funds will be transferred from the additional paid in capital account to the par value account.

What is the difference between a stock split effective date and stock split execution date?

The main difference between stock split effective date and stock split execution date is that the effective date is the day that is declared by the Securities and Exchange Commission when the trading of shares can start. This is the day when the shares will be available to the public in the case of an IPO. On the other hand, the execution date is the day when the spilt of shares happens.

Is it required to make the split payouts on a per certificate per share basis if the stock of a company splits?

When a split is paid, the payment is made in the form of a dividend and the individual will receive some stock that is proportionate to his/her original holdings. However, it is not mandatory to make these payments on a per certificate, per share basis.

What is the difference between split of stock and stock dividend?

A split of stock refers to a split in the shares of a company that enables the investors to buy shares in bulk. The value of the shares will not increase in the split. A stock dividend refers to the payment that is made to shareholders in the form of cash. The amount is normally determined by the board of directors of the company and is paid quarterly.

Under what circumstances would the stock of a company split?

The stock of a company may split when the company’s board of directors decides to split the stock. It may not be possible for a person to know when this will occur unless he/she has inside information about the company.

What is the formula to calculate the stock price after a split?

The formula to calculate the stock price after a split is as follows:

New Stock Price = Starting Stock Price x Split Factor.

Companies split their stocks for various reasons. You may not know when and why a split may occur. However, if you own stocks in a company, you need to know what affect a split of the company’s stocks will have on the value of the shares you own. You may ask an Expert if you do not understand anything about company stock splits or just need more information about them.
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