Question

On January 1, Year 1, a company issued its employees 10,000 shares of restricted stock. On January 1, Year 2, the company issued to its employees an additional 20,000 shares of restricted stock. Additional information about the company's stock is as follows:Date Fair value of stock (per share)January 1, Year 1 $20December 31, Year 1 22January 1, Year 2 25December 31, Year 2 30The shares vest at the end of a four-year period. There are no forfeitures. What amount should be recorded as compensation expense for the 12-month period ended December 31, Year 2?

Answer 1

Answer:

$175,000

Explanation:

The computation of the amount recorded as a compensation expense is shown below:

= Number of shares of restricted stock issued × fair value per share + Additional number of shares of restricted stock issued × fair value per share

= 10,000 shares × $20 + 20,000 shares × $25

= $200,000 + $500,000

= $700,000

This $700,000 represents the four year period but we have to find out for one year so it would be

= $700,000 ÷ 4

= $175,000

We simply multiplied the number of shares with the fair value per share so that the compensation expense could come