Stock Splits | Financial Accounting (2024)

FAQs

How to calculate stock split in accounting? ›

The company declares a 4-for-1 stock split. Multiply the number of shares by 4: 40,000 shares are outstanding after the split. Divide the par value by 4: each share has a par value of $4 after the split. Also divide the market value per share by four, resulting in $5 per share.

Stock split accounting refers to the accounting adjustments made in a company's financial statements and records when a stock split occurs. Remember, a stock split does not change the overall equity value of the company; it merely changes the number of shares outstanding and the par value (if any) of those shares.

Calculating total shares after stock split

Shareholders who wish to estimate the total number of shares that they will own after a stock split can use the following formula: Total number of shares post stock split = number of shares held * number of new shares issued for each existing share.

A journal entry is not required for a stock split or a reverse stock split. These events only impact the number of shares outstanding and the par value of the stock.

How does a 3-for-2 stock split actually work? A 3-for-2 split means the investor will have one and one half times as many shares as the investor had before the split, with each share having a value of two-thirds of the pre-split market price.

No journal entry is recorded for a stock split. Instead, the company prepares a memo entry in its journal that indicates the nature of the stock split and indicates the new par value. The balance sheet will reflect the new par value and the new number of shares authorized, issued, and outstanding after the stock split.

If your company pays dividends, the amount of the dividend is generally adjusted to reflect the post-split price. In a 2-for-1 stock split, for example, a dividend of 50-cents per share might be adjusted to 25-cents per share.

Stock splits come in multiple forms, but the most common are 2-for-1, 3-for-2 or 3-for-1 splits. For example, let's say you owned 10 shares of a stock trading at $100. In a 2-for-1 split, the company would give you two shares with a market-adjusted worth of $50 for every one share you own, leaving you with 20 shares.

In a stock split, a company divides its existing stock into multiple shares to boost liquidity. Companies may also do stock splits to make share prices more attractive. For shareholders, the total dollar value of their investment remains the same because the split doesn't add real value.

Shares previously owned x 3 = New amount of shares held. For example: Before the split you owned 5 shares of Walmart. Use the equation above (5 previously owned shares x 3). You now own 15 shares of Walmart.

What is a 1 to 4 stock split? ›

For example, a 1-to-4 (or 1:4) reverse stock split means that a person with 4 shares now has 1, and each of those shares are now worth 4 times the previous value. In a 1-to-3 reverse stock split, a person with 3 shares now has 1 share. Subsequently, each of those shares is now worth 3 times the previous value.

If your shares are held in paper form, you will still be registered as the holder of record with the transfer agent. You, as the holder of stock certificates, will continue to hold your certificates. At the time of the split, the company's transfer agent will add the split-adjusted shares to its records.

For example, if the stock split is 2-for-1, enter 2 in the New Shares field and 1 in the Old Shares field. Enter the new post-split stock price in the Price After Split field. In a 2-for-1 split, your number of shares would be doubled, but the price per share would be reduced by half.

If you choose “Split”, journal entry rows with the same G/L account will not be grouped, and each document row will be reflected by a separate row in the journal entry. In addition, you will be able to leverage the reference field links to copy the item information to the respective journal entry rows.

Shares previously owned x 3 = New amount of shares held. For example: Before the split you owned 5 shares of Walmart. Use the equation above (5 previously owned shares x 3). You now own 15 shares of Walmart.

To calculate a split cost, divide the total cost by the number of split ways.

With a three-for-one stock split, each old share becomes equal to three shares. In turn, the price per share becomes cheaper. So far this year, shares are up more than 11%, outpacing the S&P 500's nearly 7% rise.