Asked by Emily Rulewicz on May 26, 2024
Verified
Which of the following would result when a company sells additional shares of common stock for cash?
A) A noncurrent liability and a financing cash flow are created.
B) Common stock increases and a financing cash flow results.
C) A noncurrent liability and an investing cash flow are created.
D) Common stock increases and an investing cash flow results.
Financing Cash Flow
Cash flow that is related to the financing of a company's operations, including debt, equity, and dividends.
Common Stock
A form of financial security that denotes part ownership in a company and entails a stake in the company's earnings or deficits.
- Acquire knowledge on the treatment of common stock transactions in accounting and its effects on the balance sheet and income statement.
- Perceive the distribution of cash movements in the cash flow statement and their influence on a company’s fiscal condition.
- Scrutinize the ramifications of financing undertakings on the financial solidity and enlargement of a business entity.
Verified Answer
LB
Latoya Blackwood-WillisMay 28, 2024
Final Answer :
B
Explanation :
When a company sells additional shares of common stock for cash, it increases the common stock account and generates a financing cash flow, as cash is flowing into the company from investors who are purchasing the new shares. Therefore, B is the correct choice. A noncurrent liability would only be created if the company issued bonds, and an investing cash flow would only be created if the company purchased long-term assets such as property, plant, and equipment.
Learning Objectives
- Acquire knowledge on the treatment of common stock transactions in accounting and its effects on the balance sheet and income statement.
- Perceive the distribution of cash movements in the cash flow statement and their influence on a company’s fiscal condition.
- Scrutinize the ramifications of financing undertakings on the financial solidity and enlargement of a business entity.