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Why would a company split its shares?

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From an accounting perspective, why would a company split its shares? What are the advantages and disadvantages? How would you report the split?

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Solution Summary

Your response is 220 words and gives the traditional reason for splitting a stock, one advantage and two disadvantages and the reporting of splits.

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A company might split its shares to reduce the price per share. When the price per share is high, some investors are unable to buy the shares. If the price per share is $1,800, you can only invest if you have that much to invest! And there is a psychology that folks would prefer to own 100 shares at $18 than one share at $1,800. It just ...

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Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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