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Issuing Par Value Stock quiz

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  • What does issuing common stock represent for a company?
    Issuing common stock represents selling equity in the company, not generating revenue.
  • What is par value in the context of common stock?
    Par value is a nominal amount assigned to each share, usually less than \$1, and is recorded in the common stock account.
  • Where is the amount received above par value recorded when issuing stock?
    The amount received above par value is recorded in the Additional Paid-In Capital (APIC) account.
  • What is the journal entry when stock is issued at par value?
    Debit cash for the amount received and credit common stock for the same amount; there is no APIC.
  • How do you calculate the amount to credit to the common stock account?
    Multiply the number of shares issued by the par value per share.
  • If 500,000 shares with a par value of \$0.50 are sold for \$250,000, what is the APIC?
    The APIC is \$0 because the shares were sold at par value.
  • What is the formula to find the per share selling price if given total proceeds and shares sold?
    Divide the total selling price by the number of shares sold.
  • What is the typical journal entry format for issuing stock above par value?
    Debit cash, credit common stock for the par value, and credit APIC for the excess over par.
  • If 500,000 shares with a par value of \$0.50 are sold for \$2 each, how much goes to APIC?
    APIC receives \$750,000, which is the total cash received (\$1,000,000) minus the par value credited to common stock (\$250,000).
  • What does APIC stand for and what does it represent?
    APIC stands for Additional Paid-In Capital and represents the amount investors paid above the par value.
  • Are both common stock and APIC equity accounts?
    Yes, both common stock and APIC are equity accounts.
  • How do you calculate total cash received from a stock issuance?
    Multiply the number of shares sold by the selling price per share.
  • What happens to the accounting equation when stock is issued for cash?
    Assets (cash) increase and equity (common stock and possibly APIC) increases by the same amount.
  • What is another name for APIC that you might see in textbooks?
    APIC may also be called 'Paid-in Capital in Excess of Par.'
  • Is it common to issue stock below par value?
    No, it is very uncommon to issue stock below par value.