Explain what happens on the three statements when a company issues $100 worth of shares to investors.

Explain what happens on the three statements when a company issues $100 worth of shares to investors.

• A. Income Statement: No changes. Cash Flow Statement: Cash Flow from Financing up $100. Balance Sheet: Cash up $100; Shareholders' Equity up $100.
• B. Income Statement: Net income increases by $100. Cash Flow Statement: Cash Flow from Financing up $100. Balance Sheet: Cash up $100; Shareholders' Equity up $100.
• C. Income Statement: No changes. Cash Flow Statement: Cash Flow from Financing down $100. Balance Sheet: Cash down $100; Shareholders' Equity down $100.
• D. Income Statement: Revenues increase by $100. Cash Flow Statement: Cash Flow from Financing up $100. Balance Sheet: Cash up $100; Shareholders' Equity up $100.

Answer: (A)

Issuing shares is a financing activity that increases cash and shareholders’ equity, with no impact on the income statement. There are no revenues or expenses from issuing stock, so the income statement shows no change. The cash flow statement records a positive cash inflow from financing equal to the proceeds, here 100. On the balance sheet, cash (an asset) rises by 100 and shareholders’ equity rises by 100, keeping the accounting equation balanced. The other options would imply revenue or a cash outflow, which isn’t accurate for issuing stock.

Issuing shares is a financing activity that increases cash and shareholders’ equity, with no impact on the income statement. There are no revenues or expenses from issuing stock, so the income statement shows no change. The cash flow statement records a positive cash inflow from financing equal to the proceeds, here 100. On the balance sheet, cash (an asset) rises by 100 and shareholders’ equity rises by 100, keeping the accounting equation balanced. The other options would imply revenue or a cash outflow, which isn’t accurate for issuing stock.