When true no-par stock is sold for cash, the amount credited to the stock account is the par value times the number of shares sold.

Question

Quizplus · Accepted Answer

When true no-par stock is sold for cash, the statement provided in the question is not applicable because no-par stock does not have a par value. Par value is a nominal value assigned to a share of stock in the company's charter. No-par stock, on the other hand, does not have this nominal value assigned.For no-par stock, when it is sold for cash, the entire proceeds from the sale of the stock are credited to the stock account, which is typically called "Common Stock" or "Preferred Stock" depending on the class of stock issued. There is no separate account for the par value since no-par stock does not have a par value.
Here's how the accounting entry would look when no-par stock is sold for cash:
- Debit Cash (for the total amount received from the sale)
- Credit Common Stock or Preferred Stock (for the total amount received from the sale)
This entry reflects that the company has received cash in exchange for issuing shares of its stock, and the equity section of the balance sheet increases by the amount of cash received. The credit to the stock account represents the ownership interest that the purchasers of the stock now have in the company.

When True No-Par Stock Is Sold for Cash, the Amount