Question

On January 1, 2021, David Mest Communications granted restricted stock units (RSUs) representing 30 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $15 per share on the grant date. At the date of grant, Mest anticipated that 5% of the recipients would leave the firm prior to vesting. On January 1, 2022, 4% of the RSUs are forfeited due to executive turnover. Mest chooses the option to account for forfeitures when they actually occur.
Prepare the appropriate journal entries to record compensation expense on December 31, 2021, December 31, 2022, and December 31, 2023.

Answer 1

Answer:

The appropriate journal entries to record compensation expense on December 31, 2021, December 31, 2022, and December 31, 2023 would be as follows:

Dec 31, 2021                          Debit Credit

Compensation expense 150 million

Paid in capital-restricted stock  150 million

Dec 31, 2022

Compensation expense 146 million

Paid in capital-restricted stock  146 million

Dec 31, 2023

Compensation expense 145.20 million

Paid in capital-restricted stock  145.20 million

Explanation:

In order to Prepare the appropriate journal entries to record compensation expense on December 31, 2021, December 31, 2022, and December 31, 2023 we would have to calculate the compensation expense for 2021, 2022 and 2023 as follows:

Compensation expense 2021 = 30 million*15/3 years

Compensation expense 2021  = 450 million/3

Compensation expense 2021  =150 million

Compensation expense 2022 = [150 million-(360*4%*2/3)]

Compensation expense 2022 =(150-4) million

Compensation expense 2022 =146 million

Compensation expense 2023 = [150-(360*4%*1/3)] million

Compensation expense 2023 =150-4.8 million

Compensation expense 2023 =145.20 million

The journal entries to record compensation expense would be as follows:

                                                               

Dec 31, 2021                          Debit Credit

Compensation expense 150 million

Paid in capital-restricted stock  150 million

Dec 31, 2022

Compensation expense 146 million

Paid in capital-restricted stock  146 million

Dec 31, 2023

Compensation expense 145.20 million

Paid in capital-restricted stock  145.20 million