A stock split does not change the total amount in the common stock account. Instead, it increases the number of shares outstanding while decreasing the par value per share. This is usually done to make the stock more affordable and increase liquidity. It does not affect retained earnings or shareholder wealth, and is not treated like a stock dividend.

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A Stock Split

Question 21

Multiple Choice

A stock split:

A) is treated by accountants just like a stock dividend.
B) reduces the retained earnings account.
C) does not change the amount in the common stock account.
D) increases shareholder wealth.

Correct Answer: