Laurie Dexter starts a business called Camden Cleaning.Dexter invests $10,000 cash in Camden in exchange for its common stock.How would Camden record this transaction?
A)Debit Cash for $10,000 and credit Cleaning Revenue for $10,000.
B)Credit Cash for $10,000 and credit Cleaning Revenue for $10,000.
C)Debit Cash for $10,000 and credit Common Stock for $10,000.
D)Debit Cash for $10,000 and debit Common Stock for $10,000.
E)Debit Common Stock for $10,000 and credit Cash for $10,000.

Question

Quizplus · Accepted Answer

When Laurie Dexter invests $10,000 cash in Camden in exchange for its common stock, Camden would record the transaction by debiting Cash for $10,000 and crediting Common Stock for $10,000. This would increase the Cash account and increase the Common Stock account (a component of Stockholders' Equity), reflecting the increase in the company's equity as a result of the investment. The other options are not appropriate because Cleaning Revenue is not affected by the investment and should not be credited, and debiting both Cash and Common Stock or crediting Cash and Cleaning Revenue would not correctly reflect the effect on the company's equity.

Laurie Dexter Starts a Business Called Camden Cleaning