Question

Pad Company recorded journal entries for the issuance of common stock for $200,000, the payment of $65,000 on accounts payable, and the payment of salaries expense of $105,000. What net effect do these entries have on stockholders' equity? a. Increase of $200,000. b. Increase of $135,000. Increase of $95,000. d. Increase of $30,000. C.

Answer 1

stock holder's equity is recorded on liability side of balance sheet..

common stock ,dividend,revenue, expenses affects stockholder's equity

Issuance of common stock	+$200,000	it will increase stockholder equity.As cash is received against common stock issued.
payment of accounts payable	-	It willnot affect stockholder equity. Cash and accounts payable account will be affected.
payment of salaries expense	-$105,000	salary is an expense . it will reduce the equity balance by reducing net income and retained earnings.
Net effect	$95,000[$200,000-105,000]

increase net income by $95,000

C)

2]

declaration of dividend	-$250,000	Dividend declared will reduce retained earnings balance thereby decreasing stockholderequity.
services rendered	$160,000	It is an income.It will increase the equity balance.
Purchaseof equipment	-	equipment purchase will affect cash and equipment balance.it will not affect equity balance.
Net effect	-$90,000[-$250,000+160,000]

Answer C

Pleas upvote if you find this helpful.Incaseof query please comment.