On January 1, 2013 Jeans-R-Us Company awarded 15 million of its $1 par common sh

Question

On January 1, 2013 Jeans-R-Us Company awarded 15 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. One the date of the grant, the stock had a market price of $3 per share.

Required:

1. Determine the total compensation cost pertaining to the restricted shares.

2. Prepare the appropriate journal entry to record the award on January 1, 2013.

3. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.

4. Prepare the appropriate journal entry to record compensation expense on Dec 31, 2014

5. Prepare the appropriate journal entry to record compensation expense on Dec 31, 2015.

6. Prepare the appropriate journal entry to record the lifting of restrictions on Dec 31, 2015.

Explanation / Answer

1.

Total compensation cost pertaining to the restricted shares = 15 million * 3 = $45 Million

2 to 6. Journal Entries

                                                                                                         (in Million $)

Date Particulars Debit Credit 2013 Jan 1 Deferred compensation expense 45          Common Stock 15          Additional paid in capital 30 Dec 31 Compensation expense (45/3) 15          Deferred compensation expense 15 2014 Dec 31 Compensation expense (45/3) 15          Deferred compensation expense 15 2015 Dec 31 Compensation expense (45/3) 15          Deferred compensation expense 15

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