If a company receives $12,000 from its sole stockholder to establish a corporation,the effect on the accounting equation would be:
A)Assets decrease $12,000 and equity decreases $12,000.
B)Assets increase $12,000 and liabilities decrease $12,000.
C)Assets increase $12,000 and liabilities increase $12,000.
D)Liabilities increase $12,000 and equity decreases $12,000.
E)Assets increase $12,000 and equity increases $12,000.

Question

Quizplus · Accepted Answer

The transaction of receiving $12,000 from the sole stockholder will increase the company's cash (an asset) by $12,000, resulting in an increase in assets. At the same time, it will increase the company's equity by $12,000, representing the owner's investment in the company. Therefore, the correct answer is E - Assets increase $12,000 and equity increases $12,000. There are no changes to liabilities in this transaction, as the company did not borrow any money or incur any debts.

If a Company Receives $12,000 from Its Sole Stockholder to Establish