Final answer:
The stock account for par-value stock contains only the par value of the issued stock, not the market value. Any premium over par value is recorded in the additional paid-in capital account and capital gains from selling stock at a higher price does not affect the stock's par value on the balance sheet.
Step-by-step explanation:
In the case of par-value stock, the stock account only contains the par value of the issued stock. The par value is the nominal or face value given to the stock during the issuance and remains constant on the balance sheet. This is different from the market value, which can fluctuate based on the performance and perception of the company.
For example, consider a company that issues par-value stock at $1 per share. When an investor buys this stock, the company’s stock account reports only that $1 par value, regardless of the price the investor paid. Any amount paid over par value by investors (the premium) is recorded separately in the additional paid-in capital account. It is essential to remember that when a stock is sold later, the investor may have a capital gain, such as buying a share for $45 and selling it for $60, but such a gain does not affect the company’s reported par value.