When authorized shares are increased, how do common stock and APIC change?

When authorized shares are increased, how do common stock and APIC change?

• A. Common stock increases by par value; APIC increases by issue price minus par
• B. Common stock and APIC both increase by the full issue price
• C. Common stock increases but APIC decreases
• D. No change to common stock or APIC

Answer: (A)

Increasing authorized shares is a charter adjustment that expands how many shares the company may issue, but it does not itself create new capital or affect equity accounts. There is no journal entry to common stock or APIC simply from authorizing more shares. The only time common stock and APIC change is when shares are actually issued: common stock increases by the par value per share issued, and APIC increases by the amount paid over par (issue price minus par). If issued at par, APIC does not change. Therefore, the authorization increase does not alter common stock or APIC.

Increasing authorized shares is a charter adjustment that expands how many shares the company may issue, but it does not itself create new capital or affect equity accounts. There is no journal entry to common stock or APIC simply from authorizing more shares. The only time common stock and APIC change is when shares are actually issued: common stock increases by the par value per share issued, and APIC increases by the amount paid over par (issue price minus par). If issued at par, APIC does not change. Therefore, the authorization increase does not alter common stock or APIC.