Question

Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par value common stock at $13 per share cash?

A) Cash would be debited for $65,000.

B) Common stock would be debited for $50,000.

C) Paid-in capital in excess of par—common would be debited for $5,000.

D) Common stock would be credited for $65,000.

The rate of return on total assets and the rate of return on common stockholders' equity are used to evaluate the:

A) cash flow of the business.

B) ability to pay current liabilities with current assets.

C) liquidity of the business.

D) profitability of the business.

Answer 1

1. Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par value common stock at $13 per share cash?

Answer (A) Cash would be debited for $65,000.

Reason: Following Journal Entry Would be made

Cash Account$ 65000.00

To Common Stock Account$50000.00

To Addition paid in Capital$ 15000.00

(Being Common Stock Issued at Premium)

So Common Stock will be credited not debited. Paid in Capital in Excess will be $ 15000.

2. The rate of return on total assets and the rate of return on common stockholders' equity are used to evaluate the:

Answer (D) profitability of the business.

Reason: Return on equity is an indicator of how well a company is using its funds and return on assets is an indicator of how efficiently a company has allocated its funds on assets that are generating revenue for the company , Combining both the returns gives an overall idea of Profitability of company.Cash flow or Liquidity has nothing to do with Rate of Return on equity or Assets as company may be generating lot of profit but it may also have low cash in hand due to credit sales or other similar reasons. Similarly Ability to pay Current Liabilities with Current Assets has no relation with Rate of return on Equity or Assets