What is the premium on common stock?
Tuesday, December 28, 2010 at 10:55AM A share may have a face value, which is known as its par value. The par value is usually quite small, with $0.01 per share being a common amount. If there is a par value, then the difference between the par value and the price at which a company sells its shares to investors is called the premium on common stock.
For example, if ABC Company sells a share of common stock to an investor for $10, and the stock has a par value of $0.01, then the premium on common stock is $9.99.
This premium is rarely recorded in an account having that name. Instead, it is more commonly recorded in an account called Paid-In Capital In Excess of Par Value. It may also be recorded in an account called Additional Paid-In Capital. The account appears in the shareholders' equity section of the balance sheet. It does not appear in the income statement.
Related Topics
What are retained earnings?
What is a capital surplus?
What is capital in excess of par?
What is paid in capital?
What is par value?
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