CFA Level 1 | 9xjpqrj | Question Impact of Share Issuance...

Financial Reporting and Analysis

Impact of Share Issuance and Net Income on Retained Earnings

Very Hard Financial Statements Statement Of Changes In Equity

During the fiscal year ending December 31, 2023, Omega Industries reported various equity transactions. The company issued 10,000 shares of common stock for cash at a par value of $1 per share but sold them at a market price of $15 per share. Additionally, Omega declared and paid dividends totaling $50,000 during the year. The company also recorded a net income of $200,000. In preparing the Statement of Changes in Equity, what is the correct entry to show the effect of share issuance and net income on retained earnings?

Retained earnings increase by $200,000 and the equity issuance increases additional paid-in capital by $140,000.

Retained earnings increase by $200,000, while the equity issuance has no effect on additional paid-in capital.

Retained earnings decrease by $50,000 due to dividends and increases by $200,000 due to net income, netting to an increase of $150,000.

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