Question

Florida state

A stock split. Which one is correct?

1. is a form of a stock dividend.
2. decreases the number of outstanding shares of a corporation.
3. increases the capital of a corporation.
4. is the proportionate division of all authorized shares of a class of stock into two or more shares.

Answer 1

Stock split means splitting shares from one to two or more for eg: a share with par value $10 is outstanding, when it got splitted 2:1 then, the shares becomes 2 with a par value of $5, means no change in wealth of shareholders. Only number of shares are increasing. A. it is not a stock dividend, because par value is decreasing B. It does not decrease the number of outstanding shares, rather it increases the number of outstanding shares C. It does not increase the capital, only par value get reduced on the basis of proportion of stock split Above three options are incorrect. D. Yes, this option is correct. Stock Split is proportionate division of all authorised shares of a class of stock into two or more shares it is just dividing the shares in the proportion of stock split and thus reducing par value per share in the proportion I hope this solves your doubt. Feel free to comment if you still have any query or need something else. I'll help asap. Do give a thumbs up if you find this helpful.