Question

In: Accounting

On September 20, 2017, Umatilla Company announced a 4 for 1 stock split. After the split,...

On September 20, 2017, Umatilla Company announced a 4 for 1 stock split. After the split, the company will have about 24.6 million shares outstanding. Shares traded for about $375 a share the day the split was announced.

What is a 4 for 1 stock split?
Why do companies like Umatilla Company split their stock?
How many shares were outstanding when the stock split was announced?
How will the equity section of the balance sheet be affected by this stock split?

Expert Solution

a. What is a 4 for 1 stock split?

4 for 1 stock split means each share holder will receive three (3) Extra stock for holding one (1) share. So all share holder will receive three share on one share

But at the same time the % (percentage ) in ownership will not changed because

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b. Why do companies like Umatilla and Company split their stock?

Here company's share price is $375 per share. Which is high so it might be barrier for small investor' So by reducing the price company can broaden the ownership by cutting down the market price through stock split. Here company can attract the potential Share holder with reduced price

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c. How many shares were outstanding when the stock split was announced?

Answer:

outstanding when the stock split was announced

=26,400,000/4

=6,600,000 or 6.6 million share

outstanding when the stock split was announced =6.6 million share

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d. How will the equity section of the balance sheet be affected by this stock split?

Answer:

In the equity section of the balance sheet the total amount of equity capital will not change because stock split is non monitory transaction

But here in the equity section of the balance sheet descriptive items might change as under

Number issued and outstanding share
Par value of the share

ekkarill92 answered 1 year ago

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