Montgomery & Co., a well established law firm, provided 500 hours of its time to Fink Corporation in exchange for 1,000 shares of Fink's $5 par common stock. Mitchell's usual billing rate is $700 per hour, and Fink's stock has a book value of $250 per share. By what amount will Fink's Paid-in capital - excess of par increase for this transaction?

Question

Quizplus · Accepted Answer

The increase in Paid-in capital - excess of par is calculated as the difference between the fair value of the services provided and the par value of the stock issued. The fair value of the services is 500 hours * $700/hour = $350,000. The par value of the stock is 1,000 shares * $5/share = $5,000. Therefore, the increase in Paid-in capital - excess of par is $350,000 - $5,000 = $345,000.