A company issues $20 million in new stock. It later uses the cash received to pay off promissory notes. How many different accounts and which account names are affected by these two transactions?
A) 3 accounts involved: contributed capital, cash, and notes payable.
B) 4 accounts involved: contributed capital, cash, liabilities, and accounts payable.
C) 3 accounts involved: cash, assets, and accounts payable.
D) 3 accounts involved: contributed capital, investments, and accounts payable.

Question

Quizplus · Accepted Answer

The issuance of $20 million in new stock would result in an increase in contributed capital and cash. Therefore, two accounts are affected: contributed capital and cash.

When the cash is used to pay off promissory notes, the notes payable account would be reduced, resulting in a decrease in liabilities. Therefore, the third account affected is notes payable or liabilities.

Thus, a total of three accounts are involved: contributed capital, cash, and notes payable. Option A is the only choice that includes these three accounts.

A Company Issues $20 Million in New Stock