Professional Documents
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rather part of the investment of the stockholders. If the purchaser will not
pay par value, the corporation may issue stock at a price below par.
Remember
The difference between par value
and the lower price is called the dis
count.
Book Value
The book value per share of stock is obtained by dividing the stockhold
ers equity amount by the number of shares outstanding. It thus represents
the amount that would be distributed to each share of stock if the corpo
ration were to be dissolved.
Individual book values for common and preferred stock are dened
by separating the stockholders equity amount into two parts and dividing
each part by the corresponding number of shares. All premiums and dis
counts, as well as retained earnings or decits, go to common stock only.
Bond Characteristics
A corporation may obtain funds by selling stock or by borrowing through
long-term obligation. An issue of bonds is a form of long-term debt in
which the corporation agrees to pay interest periodically and to repay the
principal at a stated future date.