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If the number of common shares outstanding increases as a result of a stock dividend or stock split, or decreases as a result of a reverse stock split, the reporting entity should adjust the computations of basic and diluted EPS retroactively for all periods presented to reflect that change in capital structure. If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but either (1) before issuance of the financial statements, or (2) before the effective date of the registration statement, whichever is later, as applicable, the per-share computations for those and any prior period financial statements presented should be based on the new number of shares. If per-share computations reflect such changes in the number of shares, ASC 260-10-55-12 requires disclosure of those changes, including
the
retroactive treatment, explanation of the change made, and the date the change became effective.
The effective date of a stock split (i.e., the distribution date, which is the date that the shares begin trading at their new split-adjusted price) may affect the form of disclosure in the financial statements. Figure FSP 7-9 illustrates the appropriate financial statement presentation for stock splits in various situations for a registrant that is already a public entity.
Figure FSP 7-9
Presentation of EPS upon stock splits
The following assumptions are applicable in each case:
  • The latest balance sheet date is December 31, 20X7.
  • The accountant’s report date and financial statement issuance date through filing of the Annual Report on Form 10-K is January 31, 20X8.
  • The variable assumptions are the declaration dates and effective dates of the stock split.
Split Date
Case
Declared
Effective
Financial statement presentation
I
11/15/X7
12/16/X7 or 1/16/X8
Split would be reflected in 12/31/X7 balance sheet, 20X7 statement of changes in stockholders’ equity, and in per share data for all periods presented.
II
1/16/X8
1/31/X8
Same as I.
III
1/20/X8
2/20/X8
Split would be disclosed in a footnote along with the pro forma effect (labeled unaudited) on the 12/31/X7 balance sheet. Historical per share data would remain on a pre-split basis, and pro forma per share data (labeled “unaudited”) on a post-split basis would be disclosed in the notes to the financial statements.
Case III illustrates the appropriate presentation when, at the time financial statements are issued, a split has been declared, but is not effective. In this situation, historical EPS must be disclosed on a pre-split basis since the subsequent event “triggering” the split (i.e., its effectiveness) has not occurred as of the time the financial statements are issued. However, once the split is effective, the reported historical EPS becomes irrelevant in relation to post-split shares outstanding, as well as to post-split market price.
Consequently, if a split has been declared, but is not effective at the date the financial statements are issued, pro forma EPS (labeled “unaudited”) on a post-split basis should be presented in the footnotes in addition to historical EPS, which is presented on a pre-split basis. If the financial statements are reissued after the effective date, the aforementioned pro forma amounts would become historical EPS and the previously-disclosed historical amounts would be deleted.
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