How will Toro account for its two-for-one stock split?

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The Toro Company (TTC) is a manufacturer of lawn care products such as lawn mowers and irrigation systems. Toro’s brands include Toro, Lawn Genie, and Lawn-Boy.  Toro’s fiscal year end is October 31.

As of October 31, 2015, Toro had authorized 175,000,000 shares of common stock. As of this same date, it had 54,650,916 shares of common stock issued and outstanding. As of August 24, 2016, Toro’s stock price was $98.27 per share (NYSE.)

On August 18, 2016, Toro issued the following press release:

Toro also announced today that its Board of Directors has declared a two-for-one split of the company’s common stock, which will be effected in the form of a 100 percent stock dividend. The stock dividend will be distributed on September 16, 2016, to shareholders of record as of September 1, 2016.

Questions

1. What is a stock split? Why might a company want to do a stock split?
2. How many shares of issued and outstanding common stock will Toro have after the stock split?
3. On what date will the stock split occur? What will happen, in general, to the Toro common stock price following the split?
4. If a person sells all 100 shares he/she owns of Toro stock on September 2, will he/she receive the stock dividend? Why?
5. What entry, if any, will Toro make to account for the stock split? Explain.
6. Why do you think Toro would have a fiscal year end of October 31?

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)

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