Question

Galaxy Corporation issues 500 shares of $1 par value common stock for $5,000. What is the total effect on owners' equity?

a)Increases $5,000
b)No effect
c)Increases $4,500
d)Increases $500

Answer 1

The total effect on owners' equity is an increase of $5,000.

Step-by-step explanation:

The total effect on owners' equity when Galaxy Corporation issues 500 shares of $1 par value common stock for $5,000 is option (a) Increases $5,000.

When a corporation issues shares of stock, it receives cash from the investors. This cash is recorded as an increase in the company's equity. In this case, the company received $5,000, so the owners' equity increases by $5,000.