Impact of Issued Shares and Dividends on Shareholders' Equity

Hard Financial Statements Balance Sheet

XYZ Corporation prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). As of December 31, 2023, the balance sheet of XYZ Corporation shows total assets of $5,000,000, total liabilities of $3,000,000, and shareholder's equity of $2,000,000. During 2023, XYZ Corporation issued new shares for $500,000 and paid dividends of $200,000. Consider the implications of these changes to shareholders’ equity on the balance sheet.

What would be the correct treatment of the new issued shares and dividends paid when analyzing the balance sheet concerning the shareholders' equity section?

Shareholders' equity would increase by $300,000, reflecting the net effect of new shares issued and dividends paid.

Shareholders' equity would remain unchanged since the issuance of new shares offsets the reduction from dividend payments.

Shareholders' equity would increase by $500,000 since only the issuance of new shares affects it, disregarding dividends.

Hint

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