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JAMB Principles of Accounts 1999 Question 38

Question 38

Company Accounts

Which of the following events increases a corporation's shareholders' equity?

  1. A.Donation of shares out of the corporation's own stock to the corporation
  2. B.The corporation's purchase of treasury stock
  3. C.Shares of previously subscribed stock issued to subscribing stockholders
  4. D.A municipality donation of land to the corporation.
Show the answer and explanation

Answer: D (A municipality donation of land to the corporation.)

Explanation

Donated land increases assets without any liability, so shareholders' equity rises. Treasury stock purchases reduce equity; A and C leave its total unchanged.