Question

Do It! Review 1-3 Classify the following items as issuance of stock, dividends, revenues, or expenses. Then indicate whether each item increases or decreases stockholders’ equity. 1. Dividends is ; it stockholders' equity. 2. Rent Revenue is ; it stockholders' equity. 3. Advertising Expense is a(n) ; it stockholders' equity. 4. When stockholders pay cash into the business, it is ; it stockholders' equity.

Answer 1

Answer:

1. Dividends = Dividends, it decreases stockholder's equity.

2. Rent Revenue = Revenue, it increases stockholder's equity

3. Advertising Expense = Expense, it decreases stockholder's equity

4. Stockholder's pay cash into business = Issuance of stock, increases stockholder's equity.

Explanation:

Notes to above:

1. Dividends are paid from current year income or from retained earnings, as both current year earnings and retained earnings are clubbed into equity thus, with payment of dividend, equity is decreased.

2. Rent revenue is a part of income and income is part of equity as with increase in income there is increase in equity also.

3. Advertising expense will decrease the income and with decrease in income there will be decrease in equity.

4. Stockholder's pay cash into business as for issuance of stock and with issue of stock equity will increase.