If a company declares a stock split, what is the effect on their retained earnings and earnings per share?

$\begin{array}{ll}
&\text { Retained } & \text { Earnings } \
&\text { Earnings } & \text { per Share }\\hline
A.&\text { Unchanged } & \text { Unchanged } \
B.&\text { Unchanged } & \text { Decreased } \
C.&\text { Decreased } & \text { Unchanged } \
D.&\text { Decreased } & \text { Decreased }
\end{array}$

Question

If a company declares a stock split, what is the effect on their retained earnings and earnings per share?

$\begin{array}{ll}
&\text { Retained } & \text { Earnings } \
&\text { Earnings } & \text { per Share }\\hline
A.&\text { Unchanged } & \text { Unchanged } \
B.&\text { Unchanged } & \text { Decreased } \
C.&\text { Decreased } & \text { Unchanged } \
D.&\text { Decreased } & \text { Decreased }
\end{array}$

Quizplus · Accepted Answer

A stock split does not affect a company's retained earnings as it is essentially a cosmetic change that does not impact the company's balance sheet values. However, it does decrease earnings per share (EPS) because the same amount of earnings is now spread over a larger number of shares.

If a Company Declares a Stock Split, What Is the Effect