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What is premium on common stock?

Harold Averkamp, CPA, MBA

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 .

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

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