Question

Lewelling Company issued 101,000 shares of its $1 par common stock to the Michael Morgan law firm as compensation for 4,100 hours of legal services performed. Morgan’s usual rate is $100 per hour. By what amount should Lewelling’s paid-in capital - excess of par increase as a result of this transaction?

Answer 1

Answer:

Paid in capital excess of par is $$309,000

Explanation:

Journal Entries

Debt: Legal services (4,100 hours × $100 per hour)  = $410,000

Credit: Common stock (101,000 shares × $1 par)  = $101,000

Credit: Paid-in capital - excess of par (Remainder)  = $309,000

To record the 101,000 shares compensated by 4,100 legal hours with $1 par value)

In the above transaction common stock issued in excess of par for legal services as compensation instead cash. Hence "legal services" have been debited as issuing company benefited for legal services. "Common stock" and "paid in capital in excess of par" has been credited as this issuing company issuing common stock.

Paid in capital excess of par is $$309,000