ACC 423 Intermediate Financial Accounting III WEEK 2 DQ

What are the differences between traditional and derivative instruments? Why do companies use derivative instruments? Are derivatives a good investment? Explain why or why not.

Investment Classifications

How do the various classifications of investments affect financial statements? What is the rationale behind the different accounting methods for the various investment classifications? Which is more important when determining the accounting method for securities, influence, or ownership? Explain why.

• To attract investors because the company believes the stock price is too low.

Some reverse stock can cause a small shareholder to be cashed out.

"A company's board of directors may declare a reverse stock split without shareholder approval.
Although the SEC has authority over a broad range of corporate activity, state corporate law and
a company's articles of incorporation and by-laws govern reverse stock splits" (Reference:  SEC, 2012).

Reverse Stock Splits

We are discussing stock splits however there are also reverse stock splits.  There a couple of reasons a company would use a reverse stock;

• To reduce the outstanding shares increasing the price,
• To reduce the number of shareholders,
• To keep from being unlisted from the exchange in which it trades because the price of the stock has fallen below a certain price.