Par value of common stock is:

Par value of common stock is:

• A. An arbitrary value assigned to stock to meet a legal requirement
• B. The current market price of the stock
• C. The amount credited to additional paid-in capital
• D. The dividend rate

Answer: (A)

Par value is the nominal value assigned to each share in the corporate charter to satisfy legal capital requirements. It represents a set, often small, face value and is not related to the stock’s market price or to the dividends paid. When shares are issued, the amount above par goes to Additional Paid-In Capital, while the par value itself increases the Common Stock account. So the best answer is that par value is an arbitrary value assigned to stock to meet a legal requirement. For example, if par value is $1 and 1,000 shares are issued at $10 each, Common Stock increases by $1,000 and Additional Paid-In Capital by $9,000. The dividend rate is decided separately and has no bearing on par value.

Par value is the nominal value assigned to each share in the corporate charter to satisfy legal capital requirements. It represents a set, often small, face value and is not related to the stock’s market price or to the dividends paid. When shares are issued, the amount above par goes to Additional Paid-In Capital, while the par value itself increases the Common Stock account. So the best answer is that par value is an arbitrary value assigned to stock to meet a legal requirement. For example, if par value is $1 and 1,000 shares are issued at $10 each, Common Stock increases by $1,000 and Additional Paid-In Capital by $9,000. The dividend rate is decided separately and has no bearing on par value.