What is the par value of common stock?
The par value is the value of one share of common stock. The par value is set by the company’s organization or charter documents. The par value does not indicate the market value of the stock. The par value is fixed and does not fluctuate based on the market price of the stock.
As you can see in the visual below, the par value is set by the company and that is what is required to common stock. The difference between the par value and market price is considered additional paid-in capital (APIC).
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What is additional paid-in capital (APIC)?
Additional paid-in capital is the incremental value that investors are willing to pay for the stock above the par value of shares issued. For example, a company might have common stock with a par value of $5, but investors are willing to pay $20 for it. That $15 difference represents additional paid-in capital. The company […]
What is the journal entry to record additional paid-in capital (APIC)?
APIC is the difference between the issued price (i.e. market price) and the par value assigned to the stock. If the issued price is higher than the par value, then the difference is plugged to APIC. The journal entry below illustrates the journal entry the company would record when stock is issued. As you can […]