# Par value of a stock refers to the ________. A. issue price of a stock B. value assigned by the incorporation documents C. maximum selling price of a stock D. dividend to be paid by the corporation

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 14, Problem 4MC
Textbook Problem
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## Par value of a stock refers to the ________.A. issue price of a stockB. value assigned by the incorporation documentsC. maximum selling price of a stockD. dividend to be paid by the corporation

To determine

Introduction:

Two of the most important values associated with stock are market value and par value. The market value of stock is the price at which the stock of a public company trades on the stock market. This amount does not appear in the corporation’s accounting records, nor in the company’s financial statements.

Most corporate charters specify the par value assigned to each share of stock. This value is printed on the stock certificates and is often referred to as a face value because it is printed on the “face” of the certificate.

To choose:

The correct option.

### Explanation of Solution

Incorporators typically set the par value at a very small arbitrary amount because it is used internally for accounting purposes and has no economic significance. As par value often has some legal significance, it is considered to be legal capital. In some states, par value is the minimum price at which the stock can be sold.

A. Issue price of a stock − It’s not the issue price of a stock; it’s the minimum amount set by the incorporators of the shares. Shares cannot be sold below the par value...

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