Question

If a company issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect on the accounting equation

Answer 1

Answer: Both Assets and Equity would increase by $20,000

Explanation:

If the company issues 1,000 shares for $20, the company would receive cash of:

= 1,000 * 20

= $20,000

Cash is an asset so the Assets would increase by $20,000.

The entry to equity would comprise of $1,000 to Common stock and $19,000 to Additional Paid-in capital. Equity would therefore increase by $20,000 in total.