If a company issues 1,000 shares of $4 par value common stock at a market price of $120 per share, which of the following is the correct balance sheet entry?
A) Increase cash by $120,000 and increase earned capital by $120,000
B) Increase revenues by $120,000
C) Increase cash by $120,000 and increase contributed capital by $120,000
D) Increase common stock and cash by $4,000

Question

Quizplus · Accepted Answer

Cash increases by the number of shares issued times the market price; contributed capital also increases by the same amount. The latter is broken down into two segments: 1) common stock, which increases by the original par value of the shares sold, and 2) additional paid-in capital, which makes up the balance. Revenue is an income statement category and therefore irrelevant in this case.

If a Company Issues 1,000 Shares of $4 Par Value