No Par Stock Journal Entry in Accounting

Corporations can issue no-par stocks if they are not legally required to issue common stock with a par value. The par value of a bond will either be its face value or its value upon maturation. Apple Inc.’s balance sheet for its fiscal year 2019 showed an authorization of 12.6 billion no par value shares and 9.2 billion shares issued and outstanding.

• It aims to sell the remaining later than its IPO (initial public offering).
• No-par value stocks are printed with no face value designation while low-par value stocks may show an amount lower than $0.01 or up to a few dollars.
• The line items used for its reporting are “issuance of common stock“, if the common shares are sold, and “issuance of preferred stock“, if the preferred shares are sold.

The par value is also referred to as the corporation’s legal capital. The accounting entry for a no-par-value stock will be a debit to the cash account and credit to the common stock account within shareholder’s equity. Notice that in all the cases discussed above, both common and preferred stocks have been recorded with par value.

Free Debits and Credits Cheat Sheet

There is a theoretical liability by a company to its shareholders if the market price of its stock falls below the par value for the difference between the market price of the stock and the par value. For example, imagine that your company issues a common stock share for $25, and the par value of the stock is $0.10. You would credit your Common Stock account for $0.10 and your contributed capital account for $24.90.

The stated value of the shares must be shown separately in a company’s balance sheet, although it usually takes on a small chunk of the shareholders’ equity. No-par-value stock refers to stocks issued without a designated par value or stated value. Hence, the declared value of the stocks owned will not be mentioned in the stock certificates.

• The stated value of a stock can be as low as one cent, yet it can be sold for hundreds of dollars.
• For example, a bond with a par value of $1,000 can be redeemed at maturity for $1,000.
• Par value is the value of a single common share as set by a corporation’s charter.
• The stock transactions discussed here all relate to the initial sale or issuance of stock by The J Trio, Inc.

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. The following shows an example of no par value stock disclosure in the 2017 financial statements of Nordstrom, Inc.

Double Entry Bookkeeping

Moreover, the par value of a common stock often doesn’t have any connection with its dividend rate. Rather, the dividends on common stock are generally announced as certain dollar amount per share, like $5 per share or $10 per share etc. To determine the dividend yield metric, investors can simply divide this per share dividend amount by the per share cost. It is important to note that issuing stock does not create an asset. It allows the company to acquire assets like cash by selling shares.

What is No-Par Value Stock?

This means that that sum of money will be recorded in the capital stock account alone. If a corporation issues 500 shares of 5% preferred stock with a par value of $100 per share and receives $50,000, the entry will debit Cash for $50,000 and will credit 5% Preferred Stock for $50,000. The corporation agrees to pay the preferred stockholders dividends of $2,500 (par value of $50,000 X 5%) each year. Treasury stock is the corporation’s issued stock that has been bought back from the stockholders.

Why Would a Stock Have No Par Value?

It can be thought of as the minimum benchmark of capital stock that the company must have in its books to safeguard its creditors. The number of shares issued is shown under corporate planning in the corporate charter (also known as articles of incorporation and articles of incorporation). Also, any issuance of shares must be accepted by local governors and the federal Securities and Exchange Commission. The par value of the stocks sold usually represents a small portion of the total shareholders’ equity. Other essential accounts in the shareholders’ equity section include treasury stock and retained earnings.

In general, par value (also known as par, nominal value, or face value) refers to the amount at which a security is issued or can be redeemed. For example, a bond with a par value of $1,000 can be redeemed at maturity for $1,000. This is also important for fixed-income securities such as bonds or preferred shares because interest payments are based on a percentage of par. So, an 8% bond with a par value of $1,000 would pay $80 of interest in a year. Common stock issued with par value is redeemable to the company for that amount—say $1.00 per share, for instance. Sale of equity is one of an entity’s major financing activities and any cash brought by it into the business is categorized as such while drafting a statement of cash flows.

You might be wondering what difference does it make whether there is a value stated or not. Well, many states have rules to protect shareholders from the board of directors issuing too many shares and taking out too much debt. These are often called minimum legal capital laws because the corporation is requires to maintain a minimum about of net assets at all times. The fair market value of the land cannot be objectively determined as it relies on an individual’s opinion and therefore, the more objective stock price is used in valuing the land. When the individual par value changes after a stock split, you should record this change in your accounting records by using a memorandum notation.

Bond interest rates are quoted as a percentage of the par value of the bond. Since it does not have any definite value, it is difficult to have a standard on the basis of which it should be valued. The company cannot prepare its financial plan on a scientific basis.

Both stocks and bonds have a par value, which is set by the issuer of the security. Par value remains fixed for the life of a security, unlike market value, which fluctuates regularly. If the shares were sold at a price higher than par, the additional money would be credited to the APIC account. Also known to represent the legal capital per share, the par value marks the minimum amount of capital for each share being issued. It’s important to remember that the total par value remains unchanged after a stock split. So, if the total par value pre-split was $10,000 (1,000 shares and a par value of $10 per share), the total par value would still be $10,000 after the split (2,000 shares and a par value of $5 per share).

If the Board of Directors decides to retire the treasury stock at the time it is repurchased, it is cancelled and no longer considered issued. If the repurchase price is more than the original issue price, the difference is a decrease (debit) to the additional paid‐in‐capital—treasury stock account until its balance reaches zero. Once the balance in the additional paid‐in‐capital—treasury stock account reaches zero, or if there is no such account, the difference is a decrease (debit) to retained earnings. If the repurchase price is less than the original selling price, the difference increases (is credited to) the additional paid‐in‐capital account.

The use of no par stock does not apply to other types of securities, such as bonds, where the par value is essentially the same as the face value of the instrument. With a bond, the par value is the amount that the issuer will pay to the bond owner once the bond matures. Traditionally, any value under 1.0 is considered a good P/B value, indicating a potentially undervalued stock.

The market price per share, on the other hand, refers to the per share value or worth at which a company’s stock is actually traded in secondary market. Unlike par value, a stock’s market price is generally subject to frequent fluctuations and is largely determined by investors’ perception towards the future of stock and the operations of its issuing company. Once set, par value of stock remains fixed forever unless the issuing company executes a forward or reverse stock split to increase or decrease the number of its outstanding shares. In this case, the company records additional paid-in capital in its books.

Suppose this company is reluctant to assign a par value to its shares to avoid the possibility of its price plummeting below the stated value. By doing this, they wouldn’t how to find angel investors for your business have a legal liability toward the corporation’s stakeholders. Thus, we may eventually see the elimination of the par value concept as it relates to company stock.

Hence, when sold, those shares’ market value will almost always be higher than that stated value. The par value of shares can be set at levels as low as one cent per share. That is why, most of the time, it has almost no relevance in the stock market. Also, some corporations don’t have a stated value for their stocks in the first place. On the other hand, if a corporation issues preferred stock, this stock’s par value is meaningful since its dividends are expressed as a percentage of the preferred stock’s par value.