Explain the effect of each of the following transactions on the balance sheet of a firm.?

Question

a. it issues $2 million of new common stock

b. it buys a new plant and equipment at a cost of $3 million

c. it reports a large loss for the year

d. it increases the dividends paid on its common stock

Answer 1

I'm guessing you're taking unit 3 assignment at kaplan university...right? lol

Answer 2

a. it issues $2 million of new common stock

Assets (cash) increase, shareholders' equity (common stock) increase

b. it buys a new plant and equipment at a cost of $3 million

Assets (plant & equipment) increase, and either assets (cash) decrease OR liabilities increase, depending on whether they paid cash or took on notes payable

c. it reports a large loss for the year

Shareholders' equity (retained earnings) decrease

d. it increases the dividends paid on its common stock

Shareholders' equity (retained earnings) decrease