CFA Practice Question
Stock splits have the following effects on the financial statements except:
A. the account title for common stock changes to reflect the change in the par value of stock.
B. the shareholder's percentage interest in the corporation is changed by the percentage change in the market value of the stock.
C. disclosures about the stock on the balance sheet are changed to reflect the additional outstanding shares and the revised par value per share, but the contributed capital and retained earnings are unchanged.
Explanation: The shareholder's percentage interest in the corporation is unchanged.
User Contributed Comments 2
| User | Comment |
|---|---|
| dimanyc | Even though I understand B is technically correct, I kinda think it's not fair. The MV of the stock changes by 0% due to stock split, and therefore the s/hrs percentage interest in corporation also changes by 0%. I can totally see how such tricky explanation can make it into the real exam... |
| Ifi2703 | The way to approach this is to think - if you own 10% of a company, that 10% may be represented by 500 shares. Say there is a stock split and you get an additional share for every one you own - you now have 1,000 shares but that still represents 10% of the company that is owned by you. The split doesnt affect how much of the company you own, it just means each share is now worth less because your 10% is being split amongst 1,000 shares now, as opposed to 500 shares previously. |