Abilene Western Shop began business on January 1, 2016.The corporate charter authorized issuance of 10,000 shares of $2 par value common stock and 4,000 shares of $8 par value, 6% cumulative preferred stock.Abilene issued 2,400 shares of common stock for cash at $20 per share on January 2, 2016.What effect does the entry to record the issuance of stock have on total stockholders' equity?

Question

Quizplus · Accepted Answer

The issuance of 2,400 shares of common stock at $20 per share results in cash proceeds of $48,000 ((2,400 shares x $20 per share) = $48,000). Since the par value of the common stock is $2 per share, the total par value of the common stock issued is $4,800 (2,400 shares x $2 par value per share = $4,800). The remaining $43,200 ($48,000 cash proceeds - $4,800 par value) is recorded in the common stock account as additional paid-in capital. Therefore, the total stockholders' equity increases by $48,000 ($4,800 par value + $43,200 additional paid-in capital).

Abilene Western Shop Began Business on January 1, 2016