What is premium on common stock?

The premium on common stock involves the amount the issuing corporation receives when it issues common stock having a par value. The premium on common stock is the dollar amount that is in excess of the common stock’s par value.

To illustrate the premium on common stock, let’s assume that a corporation issues one share of its common stock having a par value of $0.10 per share. If the corporation receives $20 in exchange for the share, $19.90 will be recorded as the premium on common stock.

Accounting textbooks often refer to the premium on common stock as paid-in capital in excess of par value–common stock or as contributed capital in excess of par value–common stock.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.