par value

Examples of par value in the following topics:

• 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.

• Par Value

  • Par value means stated value or face value in finance and accounting.
  • From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
  • A newly issued bond usually sells at the par value.
  • Pull to par is the effect in which the price of a bond converges to par value as time passes.
  • Assess when a bond should be sold at its par value

• Bonds Issued at Par Value

  • To record a bond issued at par value, credit the "bond payable" liability account for the total face value of the bonds and debit cash for the same amount.
  • Bonds issued at par value are relatively simple to calculate and record.
  • When a bond is issued at par value it is sold for the face value amount.
  • Since the bonds are sold at par value, the amount of cash the company receives should equal the total face value of the issued bonds.
  • Explain how a company would record a bond issued a par value

• Time to Maturity

  • "Time to maturity" refers to the length of time before the par value of a bond must be returned to the bondholder.
  • "Time to maturity" refers to the length of time that can elapse before the par value (face value) for a bond must be returned to a bondholder.
  • Once this time has been reached, the bondholder should receive the par value for their particular bond.
  • This is because the par value is discounted at a higher rate further into the future.
  • Where the market price of a bond is less than its face value (par value), the bond is selling at a discount.

• Redeeming at Maturity

  • The carrying value of bonds at maturity will always equal their par value.
  • In other words, par value (nominal, principal, par or face amount), the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term.
  • For a bond sold at discount, its carrying value will increase and equal their par value at maturity.
  • For a bond sold at premium, its carrying value will decrease and equal the par value at maturity.
  • In case of a zero coupon bond, only the amount of par value is paid when the bond is redeemed at maturity.

• Accounting for Sale of 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.

• 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 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.

• Preferred Stock Rules and Rights

  • 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.

• Yield to Maturity

  • Yield to maturity (YTM) = [(Face value / Present value)1/Time period]-1
  • If the yield to maturity for a bond is less than the bond's coupon rate, then the (clean) market value of the bond is greater than the par value (and vice versa).
  • If a bond's coupon rate is equal to its YTM, then the bond is selling at par.
  • For instance, you buy ABC Company bond which matures in 1 year and has a 5% interest rate (coupon) and has a par value of $100.
  • If you hold the bond until maturity, ABC Company will pay you $5 as interest and $100 par value for the matured bond.