On January 12, Year 1, Gilliam Corporation issued 550 shares of $12 par-value common stock for $15 per share. The number of shares authorized is 5,000, and the number of shares outstanding prior to this transaction was 1,200. Which of the following describes the effect of the January 12 transaction on the financial statements?

Question

Quizplus · Accepted Answer

The issuance of 550 shares of $12 par-value common stock for $15 per share will result in an increase in the company's total equity (specifically, in the common stock account) and an increase in the company's cash balance. The par value of the shares issued is $6,600 (550 shares x $12 par value), but the company received $8,250 in cash for the shares, resulting in an additional $1,650 of contributed capital. As a result, the balance sheet will reflect an increase in both the common stock and cash accounts. The income statement is not affected by this transaction. Option C reflects this correctly. Options A, B, and D are incorrect because they do not accurately reflect the effect of the transaction on the financial statements.

On January 12, Year 1, Gilliam Corporation Issued 550 Shares