Question

Which of the following occurs when a 2-for-1 stock split is declared?A) The balance in Common Stock remains the same.B) The balance in Paid-in Capital in Excess of ParCommon doubles.C) The balance in Common Stock doubles.D) The balance in Common Stock is reduced to half the original amount.

Answer 1

Answer:

Option A) Balance in common stock remains same.

Explanation:

A stock split is decided by the firm's directors' board in which the shares that are outstanding are increased in numbers by the division of shares and hence more shares are issued to each share holder.

In 2-for-1 stock split, as the name suggests that the company or firm provide a share in addition to the share held by the share holder for each share held.

Stock splitting has psychological effect on the investors as it diminishes the share price and divide the shares so the shares increases in numbers and decreases in price thus attracting the investors where the actual stock value remains same.