Final answer:
At the time of the issuance of common stock, only the Common Stock account is recorded, in this case, equalling the par value of the issued shares. No immediate effect occurs on Retained Earnings, Accumulated Other Comprehensive Income, or Dividends. Investors anticipate earning a return in the form of dividends or capital gains.
Step-by-step explanation:
When a company issues shares of stock, the correct recording at the time of issuance is the Common Stock account and typically an additional paid-in capital account (not listed in the options). For the transaction in question, where 10,000 shares of $0.05 par value common stock are issued for $25 per share, two accounts are affected:
- The Common Stock account would be credited for the par value of the shares issued, which is 10,000 shares × $0.05 par value = $500.
- The additional paid-in capital in excess of par, or simply Additional Paid-In Capital account, would be credited for the amount received over the par value: (10,000 shares × $25) - $500 = $249,500.
Therefore, option a) Common Stock is the one that corresponds to what is recorded at issuance. Retained Earnings, Accumulated Other Comprehensive Income, and Dividends are not directly affected by the issuance of new stock.
Providing context from an investor's standpoint, the expectation for a rate of return can take the form of dividends or capital gains. In this scenario, it is important to differentiate between the earnings returned to investors via dividends and the gains made through the increase in value of the stock over time.
If we consider the hypothetical case of Babble, Inc., an investor would determine what they are willing to pay for a share of stock based on the projected dividends, which are the profits expected to be distributed to shareholders over the life of the company.