Question

Why does the equity section of a balance sheet usually contain an account “capital in excess of par?”

What does this mean?

Answer 1

• Capital in execess of par is the amount paid by investors to company for its stock, in excess of par value.
• Par value is the legal capital per share, and is usually printed on the face of the stock certificate.

• The amount of capital in excess of par is recorded in the additional paid-in capital account, and has a credit balance.

• For example, if ABC Company sell 100,000 shares of its common stock for $5 per share, and the par value of each share is $0.01, then the amount of the capital in excess of par is $499,000 (100,000 shares x $4.99/share), and is recorded as follows:

  	Debit	Credit
  Cash	500,000
  Common stock		1,000
  Additional Paid-In Capital		499,000