Question

Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2021, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within four years. The common shares have a market price of $20 per share on the award date.
Required:

1. Determine the total compensation cost from these restricted shares. 2. & 3. Prepare the appropriate journal entries. 4. Suppose a 15% forfeiture rate was expected prior to vesting. Determine the total compensation cost, assuming the company follows the fair value approach and chooses to anticipate forfeitures at the grant date.

Answer 1

Answer:

A. $40,000,000

B.No entry

C.Dr Compensation Expense 10,000,000

Cr Paid-In-Capital- Restricted Stock 10,000,000

D. $34,000,000

Explanation:

A.$20 * 2M Shares

= $40,000,000

B. No Entry

C.

Dr Compensation Expense 10,000,000

($40,000,000/ 4yrs)

Cr Paid-In-Capital- Restricted Stock 10,000,000

D.$20 * 2M Shares * 85%

= $40,000,000*85%

= $34,000,000