Ari's Cafe began operations on March 1, 2015. The corporate charter authorized the issuance of 3,000 shares of $2 par value common stock and 1,000 shares of $3 par value, 8% cumulative preferred stock. The company's fiscal year ends on February 28. Ari's sold 500 shares of common stock at $6 per share on April 1. What impact does the entry to record the April 1 transaction have on total stockholders' equity?

Question

Tiana Dickson

Business

11 May, 17:42

Ari's Cafe began operations on March 1, 2015. The corporate charter authorized the issuance of 3,000 shares of $2 par value common stock and 1,000 shares of $3 par value, 8% cumulative preferred stock. The company's fiscal year ends on February 28. Ari's sold 500 shares of common stock at $6 per share on April 1. What impact does the entry to record the April 1 transaction have on total stockholders' equity?

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Nathalia Harding · Answer 1

This new shares will increase total stockholders' equity by 3,000

Assets will increase by the same amount as well.

Explanation:

Ari's sold 500 shares of common stock at $6 per share on April 1.

Ari's receiving cash in exchange of stock. It will recognize common stock for the par value and additional paid-in for the difference:

cash proceeds: 500 shares x $6 = 3,000

common stock: 500 shares x $1 = 500

additional paid-in in excess of PV 2,500

cash 3,000 debit (+A)

common stock 500 credit (+SE)

addtional paid-in 2500 credit (+SE)