Question

If a company issues 2,500 shares of common stock at a market price of $48 per share, which of the following is the correct balance sheet effect? A. Increase cash by $120,000 and increase contributed capital by $120,000 B. Increase cash by $120,000 and increase earned capital by $120,000 C.Increase stock revenues by $120,000 D.Stock issuances are not reported on the balance sheet E. None of the above

Answer 1

Answer:

A. Increase cash by $120,000 and increase contributed capital by $120,000

Explanation:

when a company issues common stock then the company's cash balance and shareholders fund increases.

in this case, the company issued 2,500 shares of common stock at price $48;

The effect increase cash = 2,500*48

                                         = $120,000

The effect increase contributed capital = 2,500*48

                                                                  = $120,000

Therefore, The the correct balance sheet effect is, increase cash by $120,000 and increase contributed capital by $120,000.