Question

Stockholder invests $10,000 into the business in exchange for common stock.

1.Does a transaction exist?
2.Examine it for accounts affected.
3.Classify each account affected.
4.Identify direction and amount.
5.Ensure the equation still balances.

Answer 1

A stockholder invests $10,000 into the business in exchange for common stock, affecting the Common Stock and Cash accounts.

Step-by-step explanation:

1. Yes, a transaction exists when a stockholder invests $10,000 into the business in exchange for common stock.

2. The accounts affected in this transaction are:

• Common Stock (Equity)
• Cash (Asset)

3. Common Stock is affected because the stockholder is purchasing common stock, which represents ownership in the company. Cash is affected because the stockholder is investing $10,000 into the business.

4. The direction of the transaction is an increase in both Common Stock and Cash, and the amount is $10,000.

5. The equation still balances because the increase in Common Stock is offset by the increase in Cash. Therefore, the accounting equation (Assets = Liabilities + Equity) is maintained.