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On September 1, Primrose Industries with 100,000 shares of $5 par value common stock and $2,000,000 of Retained Earnings issues a 2-for-1 stock split. The market price of the stock on that date is $24 per share. Which of the following statements is correct concerning this stock split?
No entry will be made for this transaction.
Stock splits do not change any component of stockholders' equity, so no journal entry is required.

Respuesta :

No entry will be made for the transaction. Stock splits do not change any component of the stockholders' equity, so no journal entry is required.

What is a stock split?

An increase in the number of shares in a firm results from a stock split or stock divide. For instance, following a 2-for-1 split, each investor would hold twice as many shares with a halved value. Although a stock split lowers the market value of individual shares, stock dilution does not affect the company's total market capitalization. When the market price per share is so high that it becomes difficult to trade, a corporation may split its stock. One explanation is that a very high share price might dissuade inexperienced investors from purchasing the shares. Usually, a stock split follows a significant increase in share price.

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