Final answer:
Issuing stock results in an increase in assets and stockholders' equity on the company's balance sheet, with no impact on liabilities. This method of financing allows a business to raise capital without incurring debt obligations but involves selling ownership stakes and increased accountability to shareholders.
Step-by-step explanation:
When a business issues stock to obtain cash, the balance sheet reflects this transaction by showing an increase in assets (cash) with a corresponding increase in stockholders' equity. There is no effect on liabilities because the issuance of stock does not create a liability for the company; it creates an ownership stake for shareholders. The correct answer to the effects on the balance sheet is: C) Increase assets; No effect on liabilities; Increase stockholders' equity.
Issuing stock allows a company to access financial capital which can be used for expansion, without the obligation to make scheduled repayments as is the case with debt financing. However, with stock issuance, the company is effectively selling off part of its ownership and control over its operations to public investors, while becoming accountable to a board of directors and the shareholders.