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Unformatted text preview: aim that it paid a dividend, then the company can maintain its dividend­paying streak by declaring a stock dividend. E12–15 Concluded b. Option 3 would have no effect on any of the account balances reported in the financial statements because a stock split does not affect a company's financial position. However, a stock split does affect both the par value per share of the company's common stock and the number of shares outstanding, and as a result earnings per share. In this particular case, the 2­for­1 stock split would result in the par value per share of Railway Shippers' common stock decreasing from $10 to $5 and in the number of common shares outstanding increasing from 5,000 shares to 10,000 shares. c. Declaring a stock split does not inherently increase or decrease a company's value. After a stock split, a company's value is allocated over a larger number of shares, so eachshare is worth less. If each share is worth less, then each share should sell for a lower price. If a comp...
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