Final answer:
When an investor completes payment for a capital stock subscription, the accountant records a debit to Cash and a credit to the appropriate stock account. This transaction reflects the inflow of capital in exchange for shares of the company's stock. Investors expect a rate of return either through dividends or capital gains.
Step-by-step explanation:
When an investor finishes paying for their capital stock subscription, the proper accounting entry to record the issuance of the stock involves a debit to Cash.
This is because the investor has provided cash to the company in exchange for shares of stock. The cash account is increased, reflecting an inflow of funds to the company. On the other side of the transaction, the equity section of the balance sheet is affected by crediting either the Common Stock account or the Preferred Stock account, depending on the type of stock issued.
Companies issue stock as a way to raise financial capital for expansion and growth. The process not only increases a firm's visibility in the financial markets but also helps in accessing significant amounts of capital without the obligation to repay it, unlike a loan.
Investors purchasing stock always anticipate a rate of return, which can be achieved through dividends or through capital gains when they sell the stock at a higher price than the purchase price.