Question

In: Finance

Explain the concept of par value for common stock. Does par value mean that is what...

Explain the concept of par value for common stock. Does par value mean that is what the firm sold the stock for? Is par value a national concept or a state by state concept to be dealt with by organizations? Explain.

Solutions

Expert Solution

Answer to Part (1):

Par Value of a Common Stock:

Par Value of a Common Stock, also known as the nominal or face value refers to the value of the common stock as stated in the company's corporate charter.This is usually very small in nature such as one cent per share.

Example:

The par-value for Amazon stock is $0.01

Answer to Part (2);

No, par value does not mean the value at which a common stock is sold by the firm :common stocks are sold by the firm at the market value (which is in general greater than the par value)

It is mandated by some states in USA that firms will not be able to sell at a value lower than the par value in case of Initial Public Offering.

Answer to Part (3):

In USA:Par Value varies from state to state.Some states mandate that firms cannot sell at a value below the par value in Initial public Offering.To comply with this:firms set a minimum

While other states allow firms to issue shares without any par value..

jeff jeffy answered 3 months ago
Next > < Previous

Related Solutions

What does it mean when we say common stock, $10 par?
What does it mean when we say common stock, $10 par?
Issuing stock. Remember that the account “Common Stock” represents the “par” value of the common stock...
Issuing stock. Remember that the account “Common Stock” represents the “par” value of the common stock issued over the life of the company.   The Common stock or Preferred stock account is increased (credited) by the product of the number of shares times the par value of those shares. If the stock is issued at par, this will equal the amount of cash received. Note—Par value equals issue price. When stock is issued at an amount higher than par, the “extra”...
What is the current par value of a share of Home Depot's common stock?
What is the current par value of a share of Home Depot's common stock?
2. Explain the difference between par value, book value, and market value for common stock. Which...
2. Explain the difference between par value, book value, and market value for common stock. Which is most important? Why? 3. What is meant by market efficiency? What are the three types of market efficiency? 4. What rights are given to stockholders? Explain each.
Starting a Company (1) Issues 50,000 shares of $10 par value common stock at par value...
Starting a Company (1) Issues 50,000 shares of $10 par value common stock at par value for cash. (2) Acquires land and building costing $225,000 with the payment of $50,000 cash and the assumption of a 20-year, 8-percent mortgage for the balance. (3) Purchases a used crane for $13,200 cash (4) Acquires raw materials costing $8,600 on account. (5) Returns defective raw materials purchased in (4) and costing $900 to the supplier. The account has not yet been paid. (6)...
How is the issuance of stock accounted for? When issuing common stock at par value, the...
How is the issuance of stock accounted for? When issuing common stock at par value, the journal entry would be to debit __________ and credit __________________.    How is treasury stock accounted for? What is treasury stock? Why might a company later reacquire some of its own stock as treasury stock? ABC company recently repurchased some of its own stock as treasury stock for $1,000. The company is now selling the treasury stock for $1,100. The journal entry would be:...
What is the value of a common stock if:
What is the value of a common stock if: a. the firm's earnings and dividends are growing annually at 4 percent, the current dividend is $1.32, and investors require a 8 percent return on investments in common stock?b. What is the value of this stock if you add risk to the analysis and the firm's beta coefficient is 0.8, the risk-free rate is 1.5 percent, and the return on the market is 8.5 percent?c. If the price of the stock is...
What is the value of a common stock if:
What is the value of a common stock if:a. the firm's earnings and dividends are growing annually at 4 percent, the current dividend is $1.32, and investors require a 8 percent return on investments in common stock?b. What is the value of this stock if you add risk to the analysis and the firm's beta coefficient is 0.8, the risk-free rate is 1.5 percent, and the return on the market is 8.5 percent?c. If the price of the stock is...
EverBlue Company issued 30,000 shares of common stock in 2018. The par value of the common...
EverBlue Company issued 30,000 shares of common stock in 2018. The par value of the common stock is $1 per share. The selling price is $20 per share. Which of the following is true? Group of answer choices Stockholders’ equity increases by $600,000. Stockholders’ equity increases by $30,000. Stockholders’ equity decreases by $30,000. Stockholders’ equity decreases by $600,000.
Joe has common stock and preferred stock outstanding. The preferred stock has a par value of...
Joe has common stock and preferred stock outstanding. The preferred stock has a par value of $100, a dividend rate of 4.5%, and is cumulative. During the past 3 years, Joe declared and paid dividends provided at left. Compute the amount of dividends paid to preferred and common shareholders each year. Preferred stock: Par value $100 Dividend rate 4.5% Shares outstanding 100,000 Dividends declared and paid: Year 1 400,000 Year 2 100,000 Year 3 1,250,000
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT