Reverse stock splits

In relatively infrequent situations, the board of directors may wish to increase the value per share by reducing the number of outstanding shares. While purchasing treasury stock reduces the number of shares, the action may not increase market value per share because of the reduction of the corporation’s resources. Thus, some corporations go through reverse stock splits in which the charter is amended to reduce the number of shares and increase the par value. Like other splits, a reverse stock split does not produce any journal entries or change in paid-in-capital but does call for modified disclosures of the stockholders’ equity and earnings per share.

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