Question

What is the most likely effect of a stock split on the par value per share...

What is the most likely effect of a stock split on the par value per share and Additional Paid-in-Capital, respectively?

Select one:

a. Decrease, Increase

b. Decrease, No Effect

c. Increase, Increase

d. No Effect, No Effect

e. No Effect, Increase

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Answer #1
Answer: (b) Decrease, no effect

Explanation:

Definition:

Stock splits is the issuance of additional shares to shareholders in accordance with their ownership percentage that results in the reduction in a par (or stated) value per share.

The intention behind the stock split is to lower the market value of the stock and increase stock marketability. As a result of the stock spilt, number of shares increases in the same proportion that the par value per share decreases and the total par value of common stock remains unchanged.

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