Difference between revisions of "Account for Stock Split"
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As the stock price of a company rises, it becomes less affordable for retail investors to purchase. To wit, the price of a share of Berkshire Hathaway Class A stock, which has never undergone a stock split, is recently priced at over $200,000 per share. Round lots of stock are sold at 100 shares per lot, so a round lot of Berkshire Hathaway stock would sell for over $20,000,000, which is more than most retail investors can afford. Most companies routinely carry out 2:1 or 3:1 stock splits to ensure their stock remain liquid and affordable. A 2 for 1 stock split doubles the number of shares outstanding, and, since the value of the company does not change, the per share stock price is reduced in half. The way stock splits are recorded is relatively simple. | As the stock price of a company rises, it becomes less affordable for retail investors to purchase. To wit, the price of a share of Berkshire Hathaway Class A stock, which has never undergone a stock split, is recently priced at over $200,000 per share. Round lots of stock are sold at 100 shares per lot, so a round lot of Berkshire Hathaway stock would sell for over $20,000,000, which is more than most retail investors can afford. Most companies routinely carry out 2:1 or 3:1 stock splits to ensure their stock remain liquid and affordable. A 2 for 1 stock split doubles the number of shares outstanding, and, since the value of the company does not change, the per share stock price is reduced in half. The way stock splits are recorded is relatively simple. | ||
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#Write a memorandum entry to note the stock split. A memorandum entry is a short message entered into the general journal and also entered into a general ledger account; it is not a complete journal entry because it does not contain [[Understand Debits and Credits|debits and credits]]. Here is an example: "On May 1, 2017, a 2-for-1 stock split was declared for the common stockholders of record as of the end of the day May 19, 2017. The stock split will result in the number of issued and outstanding shares of common shares increasing from 100,000 shares to 200,000 shares and the par value per share decreasing from $1.00 to $0.50." | #Write a memorandum entry to note the stock split. A memorandum entry is a short message entered into the general journal and also entered into a general ledger account; it is not a complete journal entry because it does not contain [[Understand Debits and Credits|debits and credits]]. Here is an example: "On May 1, 2017, a 2-for-1 stock split was declared for the common stockholders of record as of the end of the day May 19, 2017. The stock split will result in the number of issued and outstanding shares of common shares increasing from 100,000 shares to 200,000 shares and the par value per share decreasing from $1.00 to $0.50." | ||
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==Tips== | ==Tips== | ||
