What is the par value of a stock?

The par value of a stock is defined as the nominal value assigned to a share for accounting purposes. This value is established at the time of issuance and is generally a minimal amount, often set at $1 or even lower. It serves as a foundational amount that reflects the equity of the company and is important for determining the legal capital that must be maintained in the company.

In financial statements, par value plays a crucial role in the accounting for stock transactions. When a company issues stock, the par value is recorded in the equity section of the balance sheet, while any amount received from investors over the par value is classified as additional paid-in capital or capital surplus. This distinction is important for maintaining proper accounting records and reports to shareholders regarding the company's capital structure.

The other options refer to different aspects related to stock but do not accurately define par value. The market price reflects the trading value of the stock on the stock exchange, the maximum selling price is not typically a characteristic of par value, and dividends pertain to the income shareholders receive rather than the intrinsic valuation of shares.