What is the recording status when preferred stock is issued above par value?

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Master the UCF ACG2021 Principles of Financial Accounting Final Exam. Study with comprehensive practice tests, flashcards, and multiple choice questions, each with detailed explanations. Ace your exam!

When preferred stock is issued above par value, it is recorded in the company's financial records at the amount received from investors, which is greater than the par value. The excess amount received over the par value is allocated to a separate account within equity typically referred to as "Additional Paid-In Capital" or "Paid-In Capital in Excess of Par."

This practice ensures that the financial statements accurately reflect the total investment made by shareholders in the company. By recording the preferred stock at its issue price (which is above par), the company provides a true representation of what shareholders have invested beyond the nominal value of the stock.

In contrast, recording at par value would misrepresent the actual amount contributed by investors, while recording at book value or market value would also not accurately reflect the actual transaction that occurred when the stock was issued. Therefore, proper accounting principles dictate that the excess over par value is appropriately recognized in the paid-in capital section of the equity section of the balance sheet.