How Is Cash Invested by Shareholders in Exchange for Shares

question 11

Multiple Choice

How is cash invested by shareholders in exchange for shares initially recorded in the accounting records?

• A)As an increase in retained earnings, and an increase in cash.
• B)As an increase in long-term investments, and a decrease in cash.
• C)As an increase in common shares, and a decrease in cash.
• D)As an increase in common shares, and an increase in cash.

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Definitions:

Temporary Accounts

Accounts used to record transactions for only a single accounting period, which are then reset or closed at the period's end, such as revenues, expenses, and dividends.

Supplies

Items used in the operation of a business that are not directly related to the production of goods or services, such as office supplies.

Prepaid Expenses

Payments made in advance for goods or services that will be received in the future.

Retained Earnings

The portion of a company's profits that is not distributed to shareholders as dividends but is instead reinvested in the business or held as a reserve.