A New Company Issues 2,000 Shares of $5 Par Common

question 231

Multiple Choice

A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during its first month of business. The lawyer's normal fee is $15,000 for similar work. Which of the following accounting equation effects would be recorded if the stock is not currently trading?

• A) A decrease in Common Stock for $10,000
• B) An increase in Common Stock for $15,000
• C) A decrease in Additional Paid-In Capital--Common Stock for $5,000
• D) An increase in Additional Paid-In Capital--Common Stock for $5,000

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Definitions:

Industry

A sector of the economy characterized by a specific type of activity or product, such as manufacturing, technology, or services.

Firms

Business organizations that produce goods or provide services with the aim of making a profit.

Resources

Assets, materials, and inputs needed for the production of goods and services, including natural, human, and capital resources.

Market System

A market-based economic system where decisions about investment, production, and the allocation of goods are driven by the dynamics of supply and demand, with goods and services' prices being freely determined.