Taxon Corp. granted restricted stock units (RSUs) representing 30 million of its

Question

Taxon Corp. 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 $8 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?

0.

$30 million.

$80 million.

$240 million.

Explanation / Answer

$   8                        fair value per share
x 30 million        shares represented by RSUs

$240 million       FV of shares represented by RSUs

The $240 million total compensation is expensed equally over the three-year vesting period, reducing earnings by 80 million each year.

Earnings will reduce by 80 m

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