MBA 601 - Exam 2, Week 6 Study
Guide Questions and Actual Answers
2025-2026 Updated.
On January 1, Year 1 Graham Corporation issued 200 shares of $5 par
value common stock for $40 per share. Which of the following shows how the stock issue will
affect Graham's financial statements on January 1, Year 1? - Answer Assets = 8000
Common Stock = 1000
Paid-in Capital = 7000
Statement of CF = 8000 FA
Issuing par value common stock is an asset source transaction. Assets (cash) increase and
stockholders' equity increases. In this case, the increase to stockholders' equity is divided into
two
components. The $1,000 ($5 par value per share × 200 shares issued) par value (legal capital) is
shown in the common stock account; and the $7,000 [($40 - $5) × 200 shares issued] portion is
shown in a separate stockholders' equity account titled "additional
paid-in capital in excess of par value". As with other stock issues, issuing common stock in
excess of par value does not affect the income statement. The total cash inflow is a financing
activity.
On January 1, Year 1 Graham Corporation issued 200 shares of $5 par
value common stock for $40 per share. Which of the following journal entries shows how this
event would be recorded on January 1, Year 1? - Answer Cash - 8000 debit; Common stock -
1000 credit; additional paid in capital - 7000 ...... Issuing par value common stock is an asset
source transaction. Assets (cash) increase and two stockholders' equity accounts increase. Debit
entries increase asset accounts and credit entries increase stockholders' equity accounts. In this
case the asset account (cash) is debited, the stockholders' equity accounts (common stock and
additional paid-in capital in excess of par value) are credited.
On January 1, Year 1 Graham Corporation issued 200 shares of $5 stated value preferred stock
for $40 per share. Which of the following shows how the stock issue will affect Graham's
financial statements on January 1, Year 1? - Answer Assets = 8000
Pref. Stock = 1000
, Issuing stated value preferred stock has the same financial statement effects as issuing par value
common stock. The only change is in the account titles. Assets (cash) increase and stockholders'
equity increases. The increase to stockholders' equity is divided into two
components. The $1,000 ($5 per share × 200 shares issued) stated value is shown in the
preferred stock account and the $7,000 [($40 - $5) × 200 shares issued] portion is shown in a
separate stockholders' equity account titled "paid-in capital in excess of stated value". As with
other stock issues, issuing preferred stock in excess of stated value does not affect the income
statement. The total cash inflow is a financing activity.
On January 1, Year 1 Graham Corporation issued 200 shares of no-par
common stock for $40 per share. Which of the following shows how the stock issue will affect
Graham's financial statements on January 1, Year 1? - Answer Assets = 8000
Common Stock = 8000
Statement of CF = 8000 FA
There is no paid-in excess account associated with no-par common stock. Instead, the total
amount of the stock issue is placed in the common stock account. In this case, assets (cash)
increase and stockholders' equity (common stock) increases by $8,000 ($40 per
share × 200 shares). As with other stock issues, issuing no-par common stock does not affect the
income statement. The total cash inflow is a financing activity.
Which of the following is normally included in the description of cumulative preferred stock
when shown in the stockholders' equity section of the balance sheet?
The par value of the stock
The number of shares authorized, issued, and outstanding
The amount of the dividend
All of the items are included in the description shown on the balance sheet - Answer The par
value of the stock
The number of shares authorized, issued, and outstanding
The amount of the dividend
Guide Questions and Actual Answers
2025-2026 Updated.
On January 1, Year 1 Graham Corporation issued 200 shares of $5 par
value common stock for $40 per share. Which of the following shows how the stock issue will
affect Graham's financial statements on January 1, Year 1? - Answer Assets = 8000
Common Stock = 1000
Paid-in Capital = 7000
Statement of CF = 8000 FA
Issuing par value common stock is an asset source transaction. Assets (cash) increase and
stockholders' equity increases. In this case, the increase to stockholders' equity is divided into
two
components. The $1,000 ($5 par value per share × 200 shares issued) par value (legal capital) is
shown in the common stock account; and the $7,000 [($40 - $5) × 200 shares issued] portion is
shown in a separate stockholders' equity account titled "additional
paid-in capital in excess of par value". As with other stock issues, issuing common stock in
excess of par value does not affect the income statement. The total cash inflow is a financing
activity.
On January 1, Year 1 Graham Corporation issued 200 shares of $5 par
value common stock for $40 per share. Which of the following journal entries shows how this
event would be recorded on January 1, Year 1? - Answer Cash - 8000 debit; Common stock -
1000 credit; additional paid in capital - 7000 ...... Issuing par value common stock is an asset
source transaction. Assets (cash) increase and two stockholders' equity accounts increase. Debit
entries increase asset accounts and credit entries increase stockholders' equity accounts. In this
case the asset account (cash) is debited, the stockholders' equity accounts (common stock and
additional paid-in capital in excess of par value) are credited.
On January 1, Year 1 Graham Corporation issued 200 shares of $5 stated value preferred stock
for $40 per share. Which of the following shows how the stock issue will affect Graham's
financial statements on January 1, Year 1? - Answer Assets = 8000
Pref. Stock = 1000
, Issuing stated value preferred stock has the same financial statement effects as issuing par value
common stock. The only change is in the account titles. Assets (cash) increase and stockholders'
equity increases. The increase to stockholders' equity is divided into two
components. The $1,000 ($5 per share × 200 shares issued) stated value is shown in the
preferred stock account and the $7,000 [($40 - $5) × 200 shares issued] portion is shown in a
separate stockholders' equity account titled "paid-in capital in excess of stated value". As with
other stock issues, issuing preferred stock in excess of stated value does not affect the income
statement. The total cash inflow is a financing activity.
On January 1, Year 1 Graham Corporation issued 200 shares of no-par
common stock for $40 per share. Which of the following shows how the stock issue will affect
Graham's financial statements on January 1, Year 1? - Answer Assets = 8000
Common Stock = 8000
Statement of CF = 8000 FA
There is no paid-in excess account associated with no-par common stock. Instead, the total
amount of the stock issue is placed in the common stock account. In this case, assets (cash)
increase and stockholders' equity (common stock) increases by $8,000 ($40 per
share × 200 shares). As with other stock issues, issuing no-par common stock does not affect the
income statement. The total cash inflow is a financing activity.
Which of the following is normally included in the description of cumulative preferred stock
when shown in the stockholders' equity section of the balance sheet?
The par value of the stock
The number of shares authorized, issued, and outstanding
The amount of the dividend
All of the items are included in the description shown on the balance sheet - Answer The par
value of the stock
The number of shares authorized, issued, and outstanding
The amount of the dividend
