Question

. Jackson Products sold 3,000 shares of common stock to new shareholders for $24 per share. The journal entry to record this transaction will:

(a) Increase total equity by $72,000. (b) Include a debit to common stock for $72,000. (c) Decrease total assets by $72,000. (d) All of the above are correct. (e) Only (a) and (b) are correct.

Answer 1

Answer :

Correct answer is option a = increase total equity by $ 72,000

Explanation :

By issuing common stock , a company raises its capital.

In the given question , Jackson products sold 3,000 shares of common stock to new shareholders for $ 24 each.

Total value of common stock issued =$24 * 3000 =$72,000

Issuance of new common stock will increase share capital and thus increase equity. Thus option a is correct

Common stock is shown under equity , and is always credit balance. Thus option b is incorrect.

As common stock is sold for $72,000, cash will also be increased with the same amount on assets side. Thus option c, d and e are also incorrect.

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