Question

Abilene Western Shop began business on January 1, 2015. The corporate charter authorized issuance of 10,000 shares of $2 par value common stock and 4,000 shares of $8 par value, 6% cumulative preferred stock. Abilene issued 2,400 shares of common stock for cash at $20 per share on January 2, 2015. What effect does the entry to record the issuance of stock have on total stockholders' equity? a. Increase of $4,800b. Decrease of $4,800c. Increase of $48,000d. Decrease of $48,000

Answer 1

c. Increase of $48,000

Step-by-step explanation:

The computation of the effect on total stockholders' equity is shown below:

= Number of common stock shares issued × price per share

= 2,400 shares × $20

= $48,000

Simply we multiply the number of common stock shares issued with the price per share so that we know about the effect on total stockholders' equity

The journal entry to record the issuance of common stock is shown below:

Cash A/c Dr XXXXX

To Common Stock XXXXX

To Additional Paid-in Capital in excess of par - Common Stock XXXXX

(Being the issuance of stock is recorded and the remaining balance is credited to the additional paid-in capital account)