Question

The account, Additional Paid-In Capital

Option 1: is a revenue account containing the amount received for the issuance of stock in excess of par value of the stock.
Option 2: is part of Retained Earnings
Option 3: is a stockholders' equity account containing the amount received for the issuance of stock in excess of par value of the stock.
Option 4: is an asset account containing the amount received for the issuance of stock in excess of par value of the stock.
Option 5: is a contra equity account containing the amount received for the issuance of stock in excess of par value of the stock.

Answer 1

The Additional Paid-In Capital is an equity account that contains the amount received from the issuance of stock above its par value, reflecting Option 3.

Step-by-step explanation:

The account, Additional Paid-In Capital, is relevant when discussing the financial aspects of a firm's stock issuance. When a company issues stock, it may sell shares at a price above their par value. The amount received that is over and above the par value is recorded in the Additional Paid-In Capital account.

Therefore, the correct answer is Option 3: Additional Paid-In Capital is a stockholders' equity account containing the amount received for the issuance of stock in excess of par value of the stock.

Stock represents firm ownership, and when a firm goes for an Initial Public Offering (IPO), it sells its stock to the public to raise capital. While the company does not benefit from subsequent stock trades between investors, initially, it can raise significant capital through the IPO.

Investors can earn a rate of return on their investment in two ways: through dividends (a direct payment from the company) and through capital gains (an increase in stock value from the purchase to the sale price).