CPA Accountant Review Questions

Category - Accounting

Common stock has a ________ balance and is a/an ______ to the Corporation.
  1. debit; liability
  2. credit; liability
  3. debit; asset
  4. credit; asset
  5. credit; equity
Explanation
Answer - B - Common stock has a credit balance and is a liability to the corporation.

Key Takeaway: Common stock is issued in exchange for part of the ownership of the corporation. The account is increased by credits and decreased by debits. It is considered a liability. The stock represents a share of equity that would need to be returned or refunded to a shareholder, almost like an accounts payable for equity. On the other hand, that share of stock represents an asset for the shareholder.
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