par value stock

Examples of par value stock in the following topics:

• Treasury Stock

  • Treasury stock can be accounted for using the cost or par value methods.
  • When using the par value method, the company's reacquisition of its own stock is treated as a retirement of the shares reacquired.
  • On the purchase date, treasury stock is increased (debited) for the par value of stock reacquired and paid in capital is reduced (debited) or increased (credited) by the amount of the purchase price in excess of par.
  • When the stock is resold, treasury stock is credited for the par value of the stock sold.
  • Distinguish between the cost method and the par value method of recording treasury stock

• Accounting for Sale of Stock

  • Most stock sales involve common stock or preferred stock.
  • If the common stock is sold above par value the journal entry is slightly different.
  • Credit additonal paid in capital (to account for the difference between par value and sell value)
  • The sale of preferred stock is similarly treated, but a separate accounts should be established to record preferred stock and any additional paid in capital for preferred stock sold at above par value.
  • Treasury stock also doesn't have the right to vote, receive dividends or receive liquidation value.

• Accounting for Preferred Stock

  • Unlike common stock, which has no set maximum or minimum dividend, the dividend return on preferred stock is usually stated at an amount per share or as a percentage of par value.
  • For par value preferred stock, the dividend is usually stated as a percentage of the par value, such as 8% of par value; occasionally, it is a specific dollar amount per share.
  • Most preferred stock has a par value.
  • Preferred stockholders receive the par value (or a larger stipulated liquidation value) per share before any assets are distributed to common stockholders.
  • The par value, authorized shares, issued shares, and outstanding shares is disclosed for each type of stock.

• Convertible Stock

  • This type of stock has an embedded option that allows it to be converted into a specified number of shares of common stock at a predetermined price; usually at a premium over the stock's market price.
  • Preferred stock is reported in the stockholder's equity section as the number of shares outstanding, multiplied by the stock's market price.
  • The result is divided between the value of the shares that fall under "common stock - par value" and the excess value over par is reported as "common stock - additional paid-in-capital".
  • The value of the conversion feature is not reported due to the uncertainty of when the conversion may occur, if at all.
  • A public company's preferred stock is designated as convertible if it can be exchanged for common stock.

• Repurchasing Stock

  • In an efficient market, the net effect of a stock repurchase does not change the value of each share.
  • Another common way for accounting for treasury stock is the par value method.
  • In the par value method, when the stock is purchased back from the market, the books will reflect the action as a retirement of the shares.
  • Consider a company that repurchases 15,000 shares of its $1 par value stock for $25 per share.
  • The reacquired stock is referred to as treasury stock.

• Preferred Stock Rules and Rights

  • Preferred stock is a special class of shares that may have any combination of features not possessed by common stock.
  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • The dividend is usually specified as a percentage of the par value, or as a fixed amount.
  • Preferred stock is a security ( a little more modern that this stock from the VOC or Dutch East India Company) that carries certain rights which designate it from common stock or debt.

• Claim to Income

  • In the cases of bankruptcy and dividend distribution, preferred stock shareholders will receive assets before common stock shareholders.
  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • As company value increases based on market determinants, the value of equity held in this company also will increase.
  • In turn, should market forces decrease, the value of equity held will decrease as well, reflecting a loss on investment and, therefore, a decrease on the value of any claims to income for shareholders.

• Stocks

  • Stock is different from the property and the assets of a business which may fluctuate in quantity and value.
  • Given the total amount of money invested in the business, a share has a certain declared face value, commonly known as the par value of a share.
  • The par value is the de minimis (minimum) amount of money that a business may issue and sell shares for in many jurisdictions and it is the value represented as capital in the accounting of the business.
  • In other jurisdictions, however, shares may not have an associated par value at all.
  • Such stock is often called non-par stock.

• The Cost of Preferred Stock

  • The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
  • The price of a preferred stock is $100.
  • The cost of preferred stock is 13%.
  • Similar to debt, this can be a relatively simple process since we can observe values needed as inputs in the market.
  • The dividend is usually specified as a percentage of the par value or as a fixed amount.

• Par Value at Maturity

  • Par value is stated value or face value, with a typical bond making a repayment of par value at maturity.
  • Par value, in finance and accounting, means the stated value or face value.
  • From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
  • Par value of a bond usually does not change, except for inflation-linked bonds whose par value is adjusted by inflation rates every predetermined period of time.
  • Bond price is the present value of coupon payments and the par value at maturity.