Question

Below is the common equity section (in millions) of Fethe Industries' last two year-end balance sheets:

2015 2014
Common stock $2,000 $1,000
Retained earnings 2,000 2,340
Total common equity $4,000 $3,340
The company has never paid a dividend to its common stockholders. Which of the following statements is CORRECT?
a. The company's net income in 2014 was higher than in 2015.
b. The company issued common stock in 2015.
c. The market price of the company's stock doubled in 2015.
d. The company had positive net income in both 2014 and 2015, but the company's net income in 2014 was lower than it was in 2015.
e. The company has more equity than debt on its balance sheet.

Answer 1

Answer: b. The company issued common stock in 2015.

Step-by-step explanation:

Common Stock is recorded at par value in the books and so the only things that can affect it are more stock being issued which would increase it or treasury stocks being purchased which would decrease it.

As the common stock increased in 2015 from 2014 by $1,000 more, it shows that the company issued $1,000 worth of stock in 2015.