Question

The par value of shares issued is normally recorded in the?

1) Common stock account
2) Retained earnings account
3) Additional paid-in capital account
4) Treasury stock account

Answer 1

The correct answer is 1) Common stock account.

The par value of shares issued is normally recorded in the Common stock account.

When a company issues shares, it assigns a par value to each share. The par value is a nominal value assigned to the shares for accounting purposes. It represents the minimum legal value of each share, which is typically a small amount, such as $0.01 or $0.10.

The Common stock account is a component of the shareholders' equity section on the balance sheet. It represents the total value of common stock issued by the company. The par value of shares issued is recorded in this account to reflect the total nominal value of the shares.

For example, if a company issues 1,000 shares with a par value of $0.10, the Common stock account will be credited with $100 (1,000 shares x $0.10 par value per share). This reflects the total nominal value of the shares issued.

Answer 2

The par value of shares is recorded in the Common stock account, which represents the nominal value of the shares. Investors earn returns through dividends and capital gains.

Step-by-step explanation:

The par value of shares issued is normally recorded in the Common stock account. This account reflects the nominal or face value of the shares issued by the company. When a company decides to sell shares, it does so to raise capital from the public in what is known as an initial public offering (IPO). After this point, any transactions with the stock are between investors, and the company does not receive additional funds from these sales. Investors earn a return on their investment through dividends or through capital gains, which occur when the stock's selling price is higher than the purchase price.