no-par value stock

Examples of no-par value stock in the following topics:

• Accounting for Preferred Stock

  • Unlike common stock, which has no set maximum or minimum dividend, the dividend return on preferred stock is usually stated at an amount per share or as a percentage of par value.
  • For no-par preferred stock, the dividend is a specific dollar amount per share per year, such as USD 4.40.
  • For par value preferred stock, the dividend is usually stated as a percentage of the par value, such as 8% of par value; occasionally, it is a specific dollar amount per share.
  • Most preferred stock has a par value.
  • The par value, authorized shares, issued shares, and outstanding shares is disclosed for each type of stock.

• Preferred Stock Rules and Rights

  • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation.
  • Some preferred shares have special voting rights to approve extraordinary events (such as the issuance of new shares or approval of the acquisition of a company) or to elect directors, but, once again, most preferred shares have no voting rights associated with them.
  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • The dividend is usually specified as a percentage of the par value, or as a fixed amount.

• Convertible Stock

  • This type of stock has an embedded option that allows it to be converted into a specified number of shares of common stock at a predetermined price; usually at a premium over the stock's market price.
  • Unlike common stock, preferred shares usually have no voting rights.
  • The result is divided between the value of the shares that fall under "common stock - par value" and the excess value over par is reported as "common stock - additional paid-in-capital".
  • The value of the conversion feature is not reported due to the uncertainty of when the conversion may occur, if at all.
  • A public company's preferred stock is designated as convertible if it can be exchanged for common stock.

• Accounting for Sale of Stock

  • Most stock sales involve common stock or preferred stock.
  • If the common stock is sold above par value the journal entry is slightly different.
  • Credit additonal paid in capital (to account for the difference between par value and sell value)
  • The sale of preferred stock is similarly treated, but a separate accounts should be established to record preferred stock and any additional paid in capital for preferred stock sold at above par value.
  • Treasury stock also doesn't have the right to vote, receive dividends or receive liquidation value.

• Treasury Stock

  • Treasury stock can be accounted for using the cost or par value methods.
  • When using the par value method, the company's reacquisition of its own stock is treated as a retirement of the shares reacquired.
  • On the purchase date, treasury stock is increased (debited) for the par value of stock reacquired and paid in capital is reduced (debited) or increased (credited) by the amount of the purchase price in excess of par.
  • When the stock is resold, treasury stock is credited for the par value of the stock sold.
  • Distinguish between the cost method and the par value method of recording treasury stock

• Employee Stock Compensation

  • The stock options have a total value of $150,000, and is for 50,000 shares of stock at a purchase price of $10.
  • The stock's par value is $1.
  • Common stock will increase by $50,000 (50,000 shares at $1 par value).
  • The journal entry would be:Cash $500,000 Additional Paid-In Capital, Stock Options $150,000 Common Stock $50,000 Additional Paid-In Capital, Excess of Par $600,000
  • There is no standardized exercise price and it is usually the current price of the company stock at the time of issue.

• Redeeming at Maturity

  • The carrying value of bonds at maturity will always equal their par value.
  • In other words, par value (nominal, principal, par or face amount), the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term.
  • For a bond sold at discount, its carrying value will increase and equal their par value at maturity.
  • For a bond sold at premium, its carrying value will decrease and equal the par value at maturity.
  • In case of a zero coupon bond, only the amount of par value is paid when the bond is redeemed at maturity.

• Dividend Preference

  • If a corporation issues only one class of stock, this stock is common stock.
  • Diluting the common stockholders' control of the corporation, since preferred stockholders usually have no voting rights.
  • Unlike common stock, which has no set maximum or minimum dividend, the dividend return on preferred stock is usually stated at an amount per share or as a percentage of par value.
  • There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock.
  • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock upon liquidation, and in the payment of dividends.

• Claim to Income

  • In the cases of bankruptcy and dividend distribution, preferred stock shareholders will receive assets before common stock shareholders.
  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • As company value increases based on market determinants, the value of equity held in this company also will increase.
  • In turn, should market forces decrease, the value of equity held will decrease as well, reflecting a loss on investment and, therefore, a decrease on the value of any claims to income for shareholders.

• Stocks

  • Stock is different from the property and the assets of a business which may fluctuate in quantity and value.
  • Given the total amount of money invested in the business, a share has a certain declared face value, commonly known as the par value of a share.
  • The par value is the de minimis (minimum) amount of money that a business may issue and sell shares for in many jurisdictions and it is the value represented as capital in the accounting of the business.
  • In other jurisdictions, however, shares may not have an associated par value at all.
  • Such stock is often called non-par stock.