5) If a company does not have enough cash to pay out regular dividends, but still wishes to give the shareholders something that they would consider of value, the company should consider doing a stock split.
6) If a company's share price is getting so high that the company thinks it might inhibit some investors from buying stock, it should consider doing a stock split.
7) Preferred Products started business on March 1, 2012, and issued 100,000 shares of $2 par value common stock at a market price of $50 per share. One year later, the share price had soared to $120. If Preferred Products does a 3-for-1 stock split, the market value of the stock will drop to $60 per share.
8) Which of the following is a reason why a company would do a stock split?
A) To defend against a hostile takeover
B) To generate additional sales revenues
C) To reduce the market price at which the stock is trading
D) To provide the shareholders with something of value, when the company cannot afford a cash dividend
9) Which of the following occurs due to a 4-for-1 stock split?
A) The par value of each share of common stock is 25% of the par value before the split.
B) The par value of each share of common stock is 200% of the par value before the split.
C) The par value of each share of common stock remains the same as before the split.
D) The par value of each share of common stock is 400% of the par value before the split.
10) Which of the following statements is TRUE?
A) Both a stock dividend and a stock split increase the balance in the common stock account.
B) Both a stock dividend and a stock split reduce retained earnings.
C) Neither a stock dividend nor a stock split will result in net gains or losses.
D) A stock split increases the par value of the stock.
11) Which of the following would be included in the entry to record a 2-for-1 stock split?
A) There is no journal entry to record a stock split.
B) Common stock would be credited.
C) Retained earnings would be credited.
D) Retained earnings would be debited.
12) Which of the following would have the same effect on the number of shares issued and outstanding as a 2-for-1 stock split?
A) A 20% stock dividend
B) A 200% stock dividend
C) A 100% stock dividend
D) A 120% stock dividend
13) Which of the following occurs when the board of directors declares a 2-for-1 stock split on 20,000 outstanding shares of $15 par common stock?
A) The par value of the stock remains the same.
B) The par value of the stock increases to $30 per share.
C) Outstanding shares decrease to 10,000.
D) Outstanding shares increase to 40,000.
14) Which of the following is a TRUE statement?
A) A stock split will increase total stockholders' equity, but a stock dividend will not.
B) Neither a stock split nor a stock dividend will increase total stockholders' equity.
C) A stock dividend will increase total stockholders' equity, but a stock split will not.
D) A stock split will decrease retained earnings, but a stock dividend will not.
15) Which of the following occurs when a 2-for-1 stock split is declared?
A) The balance in common stock remains the same.
B) The balance in common stock is reduced to half the original amount.
C) The balance in common stock doubles.
D) The balance in paid-in capital doubles.