Question

For each of the following, indicate whether the transaction increased, decreased, or had no effect on assets, liabilities, and stockholders' equity using the following format. Assets = Liabilities + Stockholders' Equity

1. Issued stock in exchange for cash.

Answer 1

Issuing stock for cash increases assets and stockholders' equity, with no effect on liabilities. This transaction results in heightened cash reserves on the balance sheet, which in turn increases shareholder's equity, balancing the accounting equation.

Step-by-step explanation:

When a company issues stock in exchange for cash, there is an increase in the company's assets and an increase in the stockholders' equity. There is no effect on liabilities. To illustrate, if a company issues stock and receives cash, the accounting equation would reflect this transaction as follows:

• Assets = Liabilities + Stockholders' Equity
• Cash (Asset) increases on the debit side.
• Common Stock (Equity) increases on the credit side.

The company's balance sheet would now show an increase in cash under assets and an increase in common stock under stockholders' equity, maintaining the balance of the accounting equation. No liabilities are created in this transaction since stock issuance is an equity event, not a debt.