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, the common stock account increases by the par value of the stock issued, which in this case is $5,000 ($1 par value x 5,000 shares). The remaining amount of $145,000 is recorded in the additional paid-in capital account. Therefore, the accounting equation is increased as follows:

Assets: Cash +$150,000 
Liabilities: None 
Equity: Common Stock +$5,000; Additional Paid-in Capital-Common +$145,000

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