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      Question

      A firm raises 1000000 by issuing common equity, which

      of the following financial statements will reflect the transactions?
      A Income statement and statement of owners’ equity Correct Answer Incorrect Answer
      B Balance sheet, income statement, and cash flow statement Correct Answer Incorrect Answer
      C Balance sheet, cash flow statement, statement of owners’ equity Correct Answer Incorrect Answer
      D Only balance sheet Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      The 100000-capital raised will appear in cash flow statements as a cash flow from financing activity. It will also appear as a contributed capital in owners’ equity. Both assets (cash) and equity (liabilities side of the balance sheet) increase in the balance sheet. The income statement is unaffected by these transactions.

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