Tweedie Company issues 13,500 shares of restricted stock to its CFO, Mary Tokar,

Question

Tweedie Company issues 13,500 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2014. The stock has a fair value of $675,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with the company until December 31, 2018. The par value of the stock is $10. At December 31, 2014, the fair value of the stock is $461,600.

(a) Prepare the journal entries to record the restricted stock on January 1, 2014 (the date of grant), and December 31, 2015. (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.)

Date

Account Titles and Explanation

Debit

Credit

1/1/14

12/31/15

(b) On July 25, 2018, Tokar leaves the company. Prepare the journal entry to account for this forfeiture. (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.)

Date

Account Titles and Explanation

Debit

Credit

Date

Account Titles and Explanation

Debit

Credit

1/1/14

12/31/15

Explanation / Answer

First we need to calculae Compensation expenses.

Compensation expenses are simply market price of stock at grant date.

As per question total compensation expenses are : $675000

No of restricted service period : 5 years

Compensation expenses are recognise as expenses over the no. of restricted years hence Amount od compensation expenses recognise each year are : $675000/5 = $135000

A ) 1.01.2014 : Compensation Expenses A/c Dr $135000

paid in capital-Restricted Stock Cr $135000

(Compensation expenses for year 1 recognise)

31.03.2015 "No Entry"

( as at that time no entry is done)

Note : Each year at first January Company recognise Compensation expenses of $135000 till 5 years if Employees fulfill certain condition of vesting.

B) If Employees is not able to fulfill condition related to vesting of stock then it is called forfeited of restricted stock in that case company just reversed all the entries already passed.

if CFO left to company at 25.07.2018 then he is not eligible to taje restricted stock as he is not fulfilled the related vesting condition hence company need to reversed the journal entry which is already passed at starting of calender year 2014 to 2018.

25.07.2018 paid in capital-restricted stock A/c dr $675000

Compensation Expenses A/c cr $675000

(Earlier Entry reversed)

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