First Link Services granted 5.6 million of its $1 par common shares to executive
ID: 2483072 • Letter: F
Question
First Link Services granted 5.6 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. The common shares have a market price of $14 per share on the grant date of the restricted stock award.
Ignoring taxes, what is the total compensation cost pertaining to the restricted shares?
Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?
1.Ignoring taxes, what is the total compensation cost pertaining to the restricted shares?
2.Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?
Explanation / Answer
1. Compensation expenses would be spread over 4 years as the shares are subject to forfeiture if employment is terminated within four years
Total compenstaion cost = 5.6 million * 14 = 78,400,000
2)
effect on earnibgs would be that it will be considered as expense thus the income statment would be debited
Journal entry for the first year would be
compenstaion expense (78,400,000/4) 19,600,000
to paid in capital restricted stock 19,600,000
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