A:

A company's capital stock shows up in the shareholders' equity portion of the balance sheet. There are two general methods for capital stock reporting, and an individual firm uses one or the other depending on whether its stock is issued with a stated par value. Capital stock refers to the issues of equity capital securities, common and preferred shares, of a publicly traded company. When viewed in total, the capital stock represents the size of the firm's equity position. Generally speaking, an expanding capital stock is a sign of financial health. More capital stock can translate to business expansion without taking on additional leverage.

Even though par value is a largely meaningless and arbitrary number, it must be recorded in a separate stockholders' equity account in a company's general ledger. All proceeds in excess of the par value are credited to a different stockholders' equity account. If no par value is listed for the stock, the capital stock is reflected entirely by the market value of all stock issues. Some states do not require a par value for stock but instead require a "stated value" in the balance sheet. This stated value acts as an effective par value and should be interpreted similarly by investors.

In a typical consolidated balance sheet, shareholders' equity is the third and last major category, following assets and liabilities. If the company has a stated par value for its preferred shares and common shares, those values are reflected under shareholders' equity next to the total amount of existing stock. Any share value in excess of par is listed under additional paid-in capital.

If no par value or stated value exists, the balance sheet should have an item called "market value of equity." This is the current stock price multiplied by the total amount of outstanding shares. This value is otherwise equal to par value plus additional paid-in capital.

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