Question

ae parts shop began business on january 1. 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. what effect does the entry to record the issuance of stock have on total stockholders' equity? a. increase of $300,000 b. increase of $150,000 c. increase of $340,000 d. increase of $120,000

Answer 1

The entry to record the issuance of stock would result in an increase of $300,000 in total stockholders' equity. Therefore, the correct option is a. increase of $300,000.

Step-by-step explanation:

To record the issuance of stock, the company would make a journal entry which would increase the common stock and additional paid-in capital accounts on the balance sheet. In this case, Ae Parts Shop issued 12,000 shares of common stock at $25 per share. The common stock account would increase by the par value of the shares, which is $5 per share, multiplied by the number of shares, which is 12,000.

This would be a total increase of $60,000 in the common stock account. The additional paid-in capital account would increase by the difference between the issue price and the par value, which is $20 per share, multiplied by the number of shares, which is 12,000. This would be a total increase of $240,000 in the additional paid-in capital account. Therefore, the entry to record the issuance of stock would result in an increase of $300,000 in total stockholders' equity.