Definition of Premium on Common Stock
If a corporation’s common stock has a par value and the corporation receives more than the par value when issuing a new share of the stock, the difference is sometimes referred to as the premium on common stock.
The premium on common stock may appear on the balance sheet as paid-in capital in excess of par value–common stock or additional paid-in capital.
Example of Premium on Common Stock
Assume that a corporation’s common stock has a par value of $0.10 per share. If the corporation receives $20 when it issues an additional share of stock, the difference of $19.90 will be recorded in a separate stockholders’ equity account entitled Premium on Common Stock or Paid-in Capital in Excess of Par Value–Common Stock .
