A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share. What is the effect on the accounts of this transaction?
A) Increase cash $2,600; increase retained earnings $2,600
B) Increase cash $1,000; increase common stock $1,000
C) Increase cash $2,600; increase common stock $1,000 and increase paid-in capital $1,600
D) Increase cash $2,600; increase common stock $1,600 and increase paid-in capital $1,000

First you have to know what accounts will be affected. When you sell stock you receive cash. Also common stock for the par value times the number of shares sold. Finally since you sold your stock above par value you will have additional paid-in capital.

Now you need to calculate the amounts for these three accounts, cash, common stock, and additional paid-in capital.

For Cash it is the number of shares sold times the selling price.

For Common Stock it is the number of shares sold times the par value.

For Additional Paid-in Capital is the difference between Cash and Common Stock or the difference between the selling price minus the par value times the number of shares sold.