Multiple Choice
The right to maintain one's proportionate ownership in a corporation when new shares are issued is known as the right of:
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12. Stockholders' Equity
Retained Earnings
Multiple Choice
Capital in excess of par is the difference between a stock's par value and its:
A
dividend value
B
book value
C
issue price
D
market value
Verified step by step guidance1
Understand the concept of 'Capital in excess of par': This term refers to the amount received by a company from issuing stock that exceeds the stock's par value. Par value is the nominal or face value of the stock, often set at a minimal amount.
Identify the components involved: Par value is the base value of the stock, while the issue price is the actual price at which the stock is sold to investors. The difference between these two values represents the 'Capital in excess of par.'
Clarify why other options are incorrect: Dividend value refers to the portion of profits distributed to shareholders, which is unrelated to the par value or issue price. Book value represents the net asset value of the company and is also unrelated to the stock's par value.
Explain the relationship between par value and issue price: When a company issues stock, the issue price is typically higher than the par value. The excess amount is recorded in the 'Capital in excess of par' account in the equity section of the balance sheet.
Summarize the correct answer: The difference between a stock's par value and its issue price is what constitutes 'Capital in excess of par.' This is an important concept in financial accounting as it reflects the additional paid-in capital from shareholders.
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