Question

First Link Services granted 20 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within five years. The common shares have a market price of $8 per share on the grant date of the restricted stock award. 1. Ignoring taxes, what is the total compensation cost pertaining to the restricted shares? 2. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?

Answer 1

Answer:

(a).  $160 million

(b).  32 million  

Explanation:

According to the scenario, computation of the given data are as follows:-  

We can calculate the Total compensation cost pertaining to the restricted shares by using following formula:-

a). Total Compensation Cost Pertaining to the Restricted Shares = Common Share × Market Price Per Share

= 20 million × $8

= $160 million

B). Effect on Earnings in the Year After the Shares are Granted to Executives = Total Compensation Cost ÷ Terminated Year

= $160 million ÷ 5

= 32 million