Fairfield Corporation issues 100,000 shares of $1 par value common stock for $10 per share. This transaction:Multiple Choiceincreases assets and decreases stockholders’ equity.increases assets and increases liabilities.increases assets and decreases liabilities.increases assets and increases stockholders’ equity.
Question
Fairfield Corporation issues 100,000 shares of 10 per share. This transaction:Multiple Choiceincreases assets and decreases stockholders’ equity.increases assets and increases liabilities.increases assets and decreases liabilities.increases assets and increases stockholders’ equity.
Solution
The correct answer is: increases assets and increases stockholders’ equity.
Here's the step-by-step explanation:
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Fairfield Corporation issues 100,000 shares of 10 per share. This means the corporation receives 1,000,000 (100,000 shares * $10/share).
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This transaction increases the corporation's assets because it receives cash from the issuance of the shares. So, the corporation's cash (an asset) increases by $1,000,000.
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At the same time, the corporation's stockholders' equity also increases. This is because the equity represents the ownership of the corporation's assets. When the corporation issues new shares, it increases the total ownership (equity) of the corporation. In this case, the common stock (part of stockholders' equity) increases by $1,000,000.
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Therefore, this transaction increases assets and increases stockholders’ equity.
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