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5.12 Stock splits
Publication date: 31 May 2022
us Financial statement presentation guide
ASC 505-20-20 defines a stock split.
Definition from ASC 505-20-20
An issuance by a corporation of its own common shares to its common shareholders without consideration and under conditions indicating that such action is prompted mainly by a desire to increase the number of outstanding shares for the purpose of effecting a reduction in their unit market price and, thereby, of obtaining wider distribution and improved marketability of the shares. Sometimes called a stock split-up.
ASC 505-20-30-6 states that in the event of a stock split, absent a legal requirement to do so, it is not necessary to transfer the amount from retained earnings to APIC and common stock (for the change in par value). Therefore, the only presentation requirements in the event of a stock split are to update:
- The shares outstanding
- The par amount of the stock on the face of the balance sheet
5.12.1 Differentiation between stock dividends and stock splits
When a stock dividend is in the form of a stock split, as described in ASC 505-20-25-2, to avoid confusion, a reporting entity should avoid solely using the word "dividend." Rather, one way to describe the transaction is as "a stock split effected in the form of a dividend."
Refer to FSP 7 for discussion of the impact of a stock dividend and stock split on earnings per share.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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