Question

Indicate whether each of the following types of transactions will either (a) increase stockholders' equity or (b) decrease stockholders' equity: 1. Issued common stock in exchange for cash. 2. Received cash for services performed for customers. 3. Paid business expenses. 4. Paid dividends

Answer 1

Answer:

Following would be the journal entries and their effect on stockholders equity

1. Issued common stock for cash

Cash A/C                                  Dr.

    To Common Stock

This transaction would increase stockholder's equity as common stock would increase.

2. Received cash for services provided

   Cash A/C                              Dr.

       To Service Revenue

(being cash received against services provided)

  This transaction would increase stockholder's equity as net income would increase

3. Paid business expenses

   Expenses   A/C                            Dr.

       To Cash A/C

(Being expenses paid recorded)

This would reduce stockholder's equity as net income would reduce.

4. Paid Dividends

  Retained Earnings                       Dr.

       To Dividend Payable A/C

(Being declaration of dividend recorded)    

   Dividend Payable A/C                 Dr.

        To Cash A/C

(Being dividends paid recorded)

This would reduce stockholder's equity as reserves and surplus would reduce.