Lewelling Company issued 100,000 shares of its $1 par common stock to the Michael Morgan law firm as compensation for 4,000 hours of legal services performed. Morgan's usual rate is $240 per hour. By what amount should Lewelling's paid-in capital-excess of par increase as a result of this transaction?

Question

Henry Barr

Business

18 July, 10:57

Lewelling Company issued 100,000 shares of its $1 par common stock to the Michael Morgan law firm as compensation for 4,000 hours of legal services performed. Morgan's usual rate is $240 per hour. By what amount should Lewelling's paid-in capital-excess of par increase as a result of this transaction?

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Amara Pearson · Answer 1

The excess of par increase as a result of this transaction of $860000

Explanation:

The excess of Lewelling's paid-in capital over par value can be computed by first of all ascertaining the fees charged by the law firm, which is then compared with the value of shares given in lieu.

Excess of paid-in capital=law firm fees-par value of firm

Law firm fees=4000*$240

=$960000

The par value of shares=100000*$1

=$100000

Excess of paid-in capital=$960000-$100000

=$860000

The journal entry to record the transaction is shown below:

Dr Professional fees $960000

Cr Treasury stock $100000

Cr Additional paid-in capital $860000

Under IFRS, the credit would $100000 share capital and $860000 in share premium account