Question

If a company issues par-value stock, the amount credited to common stock will be:

a. the total market value of all the shares issued.
b. the amount the board of directors chooses to assign to the shares.
c. the difference between the market and the par value per share times the total number of shares issued.
d. the par value per share times the number of shares issued.

Answer 1

Option d is the correct answer.The amount credited to common stock when issuing par-value stock is the par value multiplied by the number of shares issued. This reflects the stock's nominal value and legal capital. Investors earn through dividends or capital gains when the stock's market value increases.

Step-by-step explanation:

When a company issues par-value stock, the amount credited to common stock will be the par value per share times the number of shares issued. This is a standard accounting practice, ensuring that the par value (a nominal value assigned to a share of stock) is recorded in the company's equity section of the balance sheet. It represents the minimum price that shares can be issued for and reflects a legal capital that must be maintained in the company.

Investors, however, are interested in the rate of return which can come from dividends or capital gains - the increase in the stock's market value. When an investor buys stock at a certain price and sells at a higher price, the difference is the capital gain, which is a potential source of profit for shareholders.