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Gordonson, Inc, issues stock to raise capital for a large project
Gordonson, Inc, issues stock to raise capital for a large project. 400,000 shares of $1.00 par value stock are issued. The stock issues for $25 per share.
The effect on the accounting equation from issuing this stock is
a. Assets go up, Equity goes down.
b. Liabilities go up, Equity goes down.
c. Assets go down, Liabilities goes down.
d. Assets go down, Equity goes up.
e. None of the above.
Expert Solution
Answer: e. None of the above.
The journal entry for this transaction is as follows:
| Account titles | Debit | Credit |
|---|---|---|
| Cash (400,000 shares * $25) | $10,000,000 | |
| Stock capital (400,000 shares * $1) | $400,000 | |
| Additional paid in capital | $9,600,000 |
Cash is an asset, whil stock capital and additional paid in capital are equity. A debit on assets is an increase (go up) and a credit on equities are also increases, therefore, both assets and equity will go up as a result of the transaction.
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