If a company issues 1,000 shares of $1 par value common stock for $20 per share,what would be the effect on the accounting equation?

Question

Quizplus · Accepted Answer

When a company issues shares of common stock, it increases its assets (cash) by the amount received from the sale of the shares. At the same time, it increases its stockholders' equity (specifically, the contributed capital portion) by the same amount. Since there is no increase or decrease in liabilities, option A is incorrect. Option B is incorrect because there is no revenue being generated by issuing stock. Option D is incorrect because stockholders' equity is increasing, not decreasing.

If a Company Issues 1,000 Shares of $1 Par Value