Stock that is not assigned a par value or face value Show
What is No-Par-Value Stock?No-par-value stock is a stock that is not assigned a par value or face value. It is also known as no-par stock. The minimum price at which a class of share can be traded on the initial offering is called the par value of that share. Whenever a business is incorporated, the corporate charter may or may not assign a par value for the shares to be issued by the company. The face value of a stock is printed on the certificate provided by the company at the time of issuance. When it does not assign a base value or par value, it results in a no-par-value stock. The price is determined by the investors in the open market. Summary
Reasons for Issuing No-Par-Value StocksCompanies issue and investors accept no-par value stocks because of the following reasons:
Accounting Entry of Par Value and No-Par-Value StocksState laws may or may not require corporations to have a par value on the issued common stocks. In case corporations have assigned par value to the common stocks, the proceeds will be credited to two accounts of shareholder’s equity. The common stock account will be credited for the amount up to the par value amount of the shares sold. Any amount paid by the investor in excess of the par value amount of the stock would be credited to the additional paid-in capital account. The accounting entry will be a debit to cash, a credit to the common stock account, and a credit paid-in capital for the excess of par value amount. If a company has sold no-par-value stocks, the proceeds from the transaction will be credited to the common stock account only. Hence, the accounting entry will be a debit to cash and credit to the common stock account. For example, a company issues 150 common shares for $3,000, with each share having a $0.50 par value. The accounting entry is a debit of $3000 to the cash account and a credit of $0.50 * 150 = $75 to the common stock account and a credit of $2,925 ($3,000 – $75) to the paid-in capital account. Therefore, the cash account increases by $3,000, and the shareholder’s equity also increases by an aggregate of $3000 ($75 + $2,925). In case the company issues 150 no-par-value stocks, the accounting entry is a debit of $3,000 to a cash account and a credit of $3,000 to a common stock account. The above implies that whether the shares are issued with par value or not, in both cases, the shareholder’s equity and the cash account increase by $3,000. However, a par-value stock increases the liability of a company if the stock price drops drastically. More ResourcesCFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:
When shares without par value are sold the proceeds shall be credited to the?Accounting for No Par Value Stock
When a company sells no par value stock to investors, it debits cash received and credits the common stock account.
When shares at par value are sold the excess proceeds over the par value shall be credited to?The account used for the proceeds greater than par value is called "Additional Paid-In-Capital". The common stock account is credited for the amount of par value received. In this example, the company received proceeds of $100,000 (100,000 shares issued at $1/share par value).
When ordinary shares are sold at a price higher than par value the excess shall be credited as share premium?When ordinary shares are sold for a price higher than par value, any amount received in excess of the par value of the ordinary shares sold is recorded as a credit to the retained earnings account.
When treasury shares are purchased for more than par value what amount of accounts shall be debited?Treasury shares shall be recorded at cost irrespective of whether acquired below or above par value. b. The total cost of treasury shares shall be deducted from shareholder's equity.
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