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Question 6Q

Intermediate Accounting (Kieso)
Found in: Page 810

Short Answer

What is meant by par value, and what is its significance to stockholders?

The par value is a fixed and arbitrary amount per share attributed to the shares by the incorporators. It helps to determine the overall value of the shares issued.

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Step by Step Solution

Meaning of Par Value

The face value of a bond is referred to as par value. The par value determines its maturity value and the dollar value of coupon payments, which is why it is essential for bond or fixed-income instruments.

Significance of par value to stockholders

Except maybe when shares are first offered to the public, the par value has little to no impact on shareholders.

Market forces of demand and supply decide the market prices of stock shares that most shareholders must acquire for those shares; hence the par value has no bearing on those prices.

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