Par value definition - AccountingTools

The par value of a bond is usually $1,000, which is the face amount at which the issuing entity will redeem the bond certificate on the maturity ... AccountingTools CPECourses CPECourses CPELogIn HowtoTakeaCourse StateCPERequirements Books CollegeTextbooks AccountingBooks FinanceBooks OperationsBooks Articles Articles TopicsIndex SiteArchive Podcast AccountingBestPractices PodcastIndex PodcastSummary Dictionary FAQs About About Contact EnvironmentalCommitment Home AccountingTools CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ AccountingTools AccountingCPECourses&Books Articles AccountingTools CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ WhatisParValueforStock?Parvalueisthestockpricestatedinacorporation’scharter.Theintentbehindtheparvalueconceptwasthatprospectiveinvestorscouldbeassuredthatanissuingcompanywouldnotissuesharesatapricebelowtheparvalue.However,parvalueisnowusuallysetataminimalamount,suchas$0.01pershare,sincesomestatelawsstillrequirethatacompanycannotsellsharesbelowtheparvalue;bysettingtheparvalueatthelowestpossibleunitofcurrency,acompanyavoidsanytroublewithfuturestocksalesifitssharesbegintosellinthepennystockrange.Somestatesallowcompaniestoissueshareswithnoparvalueatall,sothatthereisnotheoreticalminimumpriceabovewhichacompanycansellitsstock.Thus,thereasonforparvaluehasfallenintodisuse,butthetermisstillused,andcompaniesissuingstockwithaparvaluemuststillrecordtheparvalueamountoftheiroutstandingstockinaseparateaccount.Theamountoftheparvalueofashareofstockisprintedonthefaceofastockcertificate.Ifthestockhasnoparvalue,then"noparvalue"isstatedonthecertificateinstead. WhatisParValueforPreferredStock?Theparvalueofashareofpreferredstockistheamountuponwhichtheassociateddividendiscalculated.Thus,iftheparvalueofthestockis$1,000andthedividendis5%,thentheissuingentitymustpay$50peryearforaslongasthepreferredstockisoutstanding.WhatisParValueforBonds?Theparvalueofabondisusually$1,000,whichisthefaceamountatwhichtheissuingentitywillredeemthebondcertificateonthematuritydate.Theparvalueisalsotheamountuponwhichtheentitycalculatestheinterestthatitowestoinvestors.Thus,ifthestatedinterestrateonabondis10%andthebondparvalueis$1,000,thentheissuingentitymustpay$100everyyearuntilitredeemsthebond.Bondscommonlysellontheopenmarketatpricesthatmaybehigherorlowerthantheparvalue.Ifthepriceishigherthantheparvalue,theissuingentitystillonlyhastobaseitsinterestpaymentsontheparvalue,sotheeffectiveinterestratetotheownerofthebondwillbelessthanthestatedinterestrateonthebond.Thereverseholdstrueifaninvestorbuysabondatapricebelowitsparvalue-thatis,theeffectiveinterestratetotheinvestorwillbemorethanthestatedinterestrateonthebond.ExampleofParValueforBondsForexample,ABCCompanyissuesbondshavinga$1,000parvalueand6%interestrate.AninvestorlaterbuysanABCbondontheopenmarketfor$800.ABCisstillpaying$60ininteresteveryyeartowhoeverholdsthebond.Forthenewinvestor,theeffectiveinterestrateonthebondis$60interest÷$800purchaseprice=7.5%.RelatedCoursesAccountants'GuidebookBookkeepingGuidebookGAAPGuidebook Capitalizationdefinition Taxdeductibledefinition CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ AccountingTools CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Sendusyoure-mailaddresstoreceivemonthlycoursediscounts * Thankyou! Copyright2022