Question

DAE Parts Shop began business on January 1, 2019. The corporate charter authorized issuance of 20,000 shares of $5 par value common stock and 5,000 shares of $10 par value, 5% cumulative preferred stock. DAE issued 12,000 shares of common stock at $25 per share on January 2, 2019. What effect does the entry to record the issuance of stock have on total stockholders' equity?

a. increase of $120,000
b. increase of $150,000
c. increase of $300,000
d. increase of $340,000

Answer 1

c. increase of $300,000

Step-by-step explanation:

The autorized shares do not increase the equity of the firm. The firm generaes equity when the shares are issued. Therefore, we should consider January 2nd issuance:

12,000 common shares x $25 = 300,000 total proceeds

face value: 12,000 common x $5 = 60,000 face value

additional paid-in 240, 000