What does paid-in-capital in excess of par represent?

Paid-in-capital in excess of par represents the amount received by a company from investors for its stock shares that exceeds the par value of those shares. When shares of stock are issued, they have a nominal or par value, which is often substantially lower than the actual price at which the shares are sold to investors. The difference between the selling price and the par value, multiplied by the number of shares issued, constitutes the paid-in-capital in excess of par.

For example, if a company issues shares with a par value of $1 for a price of $5, the paid-in-capital in excess of par per share would be $4. If the company issued 1,000 shares, the total paid-in-capital in excess of par would be $4,000 (1,000 shares x $4 per share). This component is essential as it reflects how much investors are willing to pay beyond the minimum legal requirement (the par value), indicating the market’s perception of the firm’s value.

The other choices do not accurately define the concept of paid-in-capital in excess of par. The total par value of all issued shares refers simply to the cumulative par value, and the sum of all retained earnings pertains to profits that have