Multiple Select Question Select all that apply Z Best, Inc. issued $$ \$ 1,000,000 $$ of common stock for cash. By accident, $$ Z $$ Best recorded the transaction by increasing cash and decreasing stockholders' equity. As a result of this entry, $$ \_ $$. (Check all that apply.) $$ \square $$ assets are understated $$ \square $$ the accounting equation is out of balance $$ \square $$ stockholders' equity is understated $$ \square $$ common stock is understated

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To analyze the situation, let's break down the transaction and the incorrect recording:

1. **Correct Transaction**: 
   - When Z Best, Inc. issues $$ \$1,000,000 $$ of common stock for cash, the correct journal entry should be:
     - Increase Cash (Asset) by $$ \$1,000,000 $$
     - Increase Common Stock (Stockholders' Equity) by $$ \$1,000,000 $$

2. **Incorrect Recording**:
   - Z Best recorded the transaction by increasing cash and decreasing stockholders' equity. This means:
     - Increase Cash (Asset) by $$ \$1,000,000 $$
     - Decrease Stockholders' Equity by $$ \$1,000,000 $$

Now, let's evaluate the implications of this incorrect entry:

- **Assets are understated**: 
  - This statement is **false**. Cash is correctly increased by $$ \$1,000,000 $$, so assets are not understated.

- **The accounting equation is out of balance**: 
  - This statement is **true**. The accounting equation is $$ 	ext{Assets} = 	ext{Liabilities} + 	ext{Stockholders' Equity} $$. Since stockholders' equity is decreased incorrectly, the equation will not balance.

- **Stockholders' equity is understated**: 
  - This statement is **true**. Stockholders' equity should have increased by $$ \$1,000,000 $$, but instead, it was decreased, leading to an understatement.

- **Common stock is understated**: 
  - This statement is **true**. Since the common stock account was not increased as it should have been, it is indeed understated.

Based on this analysis, the correct selections are:

- $$ \square $$ the accounting equation is out of balance
- $$ \square $$ stockholders' equity is understated
- $$ \square $$ common stock is understated
- The accounting equation is out of balance - Stockholders' equity is understated - Common stock is understated

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