Issuing Par Value Stock

Par value stock can be issued at par, at a premium (above par), or at a discount (below par). In each case, stock can be exchanged for either cash or noncash assets.

Issuing Par Value Stock at Par
When common stock is issued at par value, we record amounts for both the asset(s) received and the par value stock issued. To illustrate, the entry to record Dillon Snowboards’ issuance of 30,000 shares of $10 par value stock for $300,000 cash on June 5, 2011, follows.




Exhibit 13.4 shows the stockholders’ equity of Dillon Snowboards at year-end 2011 (its first year of operations) after income of $65,000 and no dividend payments.

EXHIBIT 13.4 Stockholders’ Equity for Stock Issued at Par

Issuing Par Value Stock at a Premium A premium on stock 
(See contributed capital in excess of par value.) occurs when a corporation sells its stock for more than par (or stated) value. To illustrate, if Dillon Snowboards issues its $10 par value common stock at $12 per share, its stock is sold at a $2 per share premium. The premium, known as paid-in capital in excess of par valueAmount received from issuance of stock that is in excess of the stock’s par value., is reported as part of equity; it is not revenue and is not listed on the income statement. The entry to record Dillon Snowboards’ issuance of 30,000 shares of $10 par value stock for $12 per share on June 5, 2011, follows



Point: A premium is the amount by which issue price exceeds par (or stated) value. It is recorded in the “Paid-In Capital in Excess of Par Value, Common Stock” account; also called “Additional Paid-In Capital, Common Stock.”

The Paid-In Capital in Excess of Par Value account is added to the par value of the stock in the equity section of the balance sheet as shown in Exhibit 13.5.

EXHIBIT 13.5 Stockholders’ Equity for Stock Issued at a Premium

Point: The Paid-In Capital terminology is interchangeable with Contributed Capital.

Issuing Par Value Stock at a Discount A discount on stock 
Difference between the par value of stock and its issue price when issued at a price below par value. occurs when a corporation sells its stock for less than par (or stated) value. Most states prohibit the issuance of stock at a discount. In states that allow stock to be issued at a discount, its buyers usually become contingently liable to creditors for the discount. If stock is issued at a discount, the amount by which issue price is less than par is debited to a Discount on Common Stock account, a contra to the common stock account, and its balance is subtracted from the par value of stock in the equity section of the balance sheet. This discount is not an expense and does not appear on the income statement.

Point: Retained earnings can be negative, reflecting accumulated losses. Amazon.com had an accumulated deficit of $730 million at the start of 2009.