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mrs_skeptik [129]
3 years ago
10

Indigo Company issues 11,300 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2020. The stock has a fair value o

f $565,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with the company until December 31, 2024. The par value of the stock is $10. At December 31, 2020, the fair value of the stock is $396,000.
Required:
a. Prepare the journal entries to record the restricted stock on January 1, 2014 (the date of grant), and December 31, 2015
b. On July 25, 2018, Tokar leaves the company. Prepare the journal entry to account for this forfeiture.
Business
1 answer:
Fantom [35]3 years ago
4 0

Answer:

a. Prepare the journal entries to record the restricted stock on January 1, 2014 (the date of grant), and December 31, 2015

January 1, 2014, restricted shares are issued (market price $50 per stock)

Dr Unearned compensation 565,000

    Cr Common stock 113,000

    Cr Additional paid in capital (stock options) 452,000

December 31, 2015, two years of vesting period have passed

Dr Stock based compensation expense 113,000

    Cr Unearned compensation 113,000

b. On July 25, 2018, Tokar leaves the company. Prepare the journal entry to account for this forfeiture.

July 25, stock options are forfeited

Dr Unearned compensation 452,000

    Cr Stock based compensation expense 452,000

Explanation:

total stock compensation 11,300

vesting period 5 years = 11,300 / 5 = 2,260 stocks

stock based compensation is recorded using the market price on the date of the grant (January 1, 2014) which = $565,000 / 11,300 = $50 per stock

nothing really happens to the company when the stock options are granted, because unearned compensation is a contra equity account that reduces any increase in equity resulting from the stock options.

January 1, 2014, restricted shares are issued (market price $50 per stock)

Dr Unearned compensation 565,000

    Cr Common stock 113,000

    Cr Additional paid in capital (stock options) 452,000

The company starts recording expenses as the vesting period is accrued.

December 31, 2014, one year of vesting period has passed

Dr Stock based compensation expense 113,000

    Cr Unearned compensation 113,000

December 31, 2015, two years of vesting period have passed

Dr Stock based compensation expense 113,000

    Cr Unearned compensation 113,000

December 31, 2016, three years of vesting period have passed

Dr Stock based compensation expense 113,000

    Cr Unearned compensation 113,000

December 31, 2017, four years of vesting period have passed

Dr Stock based compensation expense 113,000

    Cr Unearned compensation 113,000

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