Question

On January 1st, 2019, Pizza Company awarded 5 million of its no par common shares to key personal. The award is subject to forfeiture if employment is terminated within five years. On the grant date the market price of the shares was $10 per share. Which of the following journal entries is correctly made on December 31st, 2019 if any?
A. Debit Compensation Expense $10,000,000
Credit PIC-Excess Par $10,000,000
B. Debit Compensation Expense $10,000,000
Credit PIC-Restricted Stock $10,000,000
C. None of the above
D. Debit Compensation Expense $10,000,000
Credit Common Stock $10,000,000

Answer 1

Answer:

A. Debit Compensation Expense $10,000,000

Credit PIC-Excess Par $10,000,000

Explanation:

The total cost of the stock options granted is allocated to the respective years in which the stock compensation relates as below:

Total stock compensation=market value per share on grant date*number of stock options

Total stock compensation=$10*5,000,000=$50,000,000

compensation expense allocated per year=$50,000,000/5

compensation expense per year=$10,000,000