Valor Company issued 5,000 shares of $1 par common stock for $30 per share,providing the company with $150,000 in cash.What effect,in addition to the increase in cash,does this transaction have on the accounting equation for Valor?

Question

Quizplus · Accepted Answer

When a company issues common stock for more than its par value, the excess amount is recorded in Additional Paid-In Capital-Common. Therefore, in this transaction, Common Stock would increase by $5,000 (5,000 shares x $1 par value), while Additional Paid-In Capital-Common would increase by $145,000 ($30 selling price - $1 par value = $29 excess amount per share x 5,000 shares). The increase in Common Stock and Additional Paid-In Capital-Common would result in an increase in Total Stockholders' Equity on the accounting equation, as follows: 
Assets = Liabilities + Common Stock + Additional Paid-In Capital-Common
Increase in Cash ($150,000) = 0 + $5,000 + $145,000

Valor Company Issued 5,000 Shares of $1 Par Common Stock