Mr. Jacob deposits $16,000 in a bank account in the name of Stars PC Inc. in return for shares of stock in the corporation. So, he becomes a stockholder and the stocks he receives in exchange for the money deposited become the capital stock. Which of the following effects of this transaction is true?

1. Cash from financing activities increases by $16,000 under the statement of cash flows column. Cash under assets increases by $16,000 under the balance sheet column. Capital stock under stockholders equity also increases by $16,000 to balance the accounting equation. Since no revenues or expenses are affected, there are no entries under the income statement column.
2. Cash from operating activities decreases by $16,000 under the statement of cash flows column. Cash under assets decreases by $16,000 under the balance sheet column. Capital stock under stockholders equity also decreases by $16,000 to balance the accounting equation. Since no revenues or expenses are affected, there are no entries under the income statement column.
3. Cash from financing activities increases by $16,000 under the statement of cash flows column. Cash under assets decreases by $16,000 under the balance sheet column. Capital stock under stockholders equity also decreases by $16,000 to balance the accounting equation. Revenues increases by $16,000 and expenses are not affected under the income Statement column.
4. None of these choices are correct