208k views
5 votes
What happens if no-par value stock does not have a stated value?

A) The entire proceeds from the issuance of the stock become legal capital.
B) The entire proceeds from the issuance of the stock become paid-in capital.
C) The entire proceeds from the issuance of the stock become cash dividends.
D) The entire proceeds from the issuance are recorded as retained earnings.

1 Answer

3 votes

Final answer:

When no-par value stock is issued without a stated value, the proceeds are accounted for as paid-in capital, which is critical for a company's growth and is not subject to repayment obligations.

Step-by-step explanation:

When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock become paid-in capital. Paid-in capital is the amount of money that a company receives from investors in exchange for its stock, and represents funds raised by the company from equity rather than from ongoing operations. This type of capital is crucial for a company to finance growth and development, as it does not need to be repaid like a loan would. No-par value stocks can be advantageous in avoiding a legal capital requirement that cannot be used for dividends or returned to shareholders.

User Pseudomarvin
by
8.5k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.