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28 July, 05:55

Indicate whether each of the following types of transactions will either (a) increase stockholders' equity or (b) decrease stockholders' equity: 1. Issued common stock in exchange for cash. 2. Received cash for services performed for customers. 3. Paid business expenses. 4. Paid dividends

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  1. 28 July, 06:06
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    Following would be the journal entries and their effect on stockholders equity

    1. Issued common stock for cash

    Cash A/C Dr.

    To Common Stock

    This transaction would increase stockholder's equity as common stock would increase.

    2. Received cash for services provided

    Cash A/C Dr.

    To Service Revenue

    (being cash received against services provided)

    This transaction would increase stockholder's equity as net income would increase

    3. Paid business expenses

    Expenses A/C Dr.

    To Cash A/C

    (Being expenses paid recorded)

    This would reduce stockholder's equity as net income would reduce.

    4. Paid Dividends

    Retained Earnings Dr.

    To Dividend Payable A/C

    (Being declaration of dividend recorded)

    Dividend Payable A/C Dr.

    To Cash A/C

    (Being dividends paid recorded)

    This would reduce stockholder's equity as reserves and surplus would reduce.
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