Question

Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2017. The stock has a fair value of $120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with the company for 4 years. The par value of the stock is $5. At December 31, 2018, the fair value of the stock is $145,000. (a) Prepare the journal entries to record the restricted stock on January 1, 2017 (the date of grant), and December 31, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Answer:

Explanation:

The journal entry is shown below:

On January 1, 2017:

Unearned compensation A/c Dr $120,000

     To Common stock (4,000 × $3)                    $20,000

     To Paid-in capital in excess of par value     $100,000

(Being restricted stock is issued and the remaining balance is credited to the paid-in capital)

On December 31, 2018:

Compensation expenses A/c Dr $30,000

     To Unearned compensation                    $30,000

(Being compensation expenses are recorded)

The compensation expenses is computed below:

= (Fair value of stock) ÷ (number of years)

= ($120,000) ÷ (4 years)

= $30,000