Question

The issuance of common stock affects:

A) Only the paid-in capital account.
B) Only the income statement.
C) Only the retained earnings account.
D) Both the paid-in capital account and the retained earnings account.

Answer 1

The issuance of common stock affects both the paid-in capital and the retained earnings accounts, by increasing paid-in capital and potentially affecting future retained earnings through dividend decisions.

Step-by-step explanation:

The issuance of common stock affects both the paid-in capital account and the retained earnings account. Issuing common stock increases the paid-in capital because it is an infusion of cash or other assets into the company in exchange for stock. However, it does not affect the income statement. Retained earnings could be affected in the future if the company decides to pay dividends on the common stock, but the initial issuance does not change this account directly.