On January 1, 2018, David Mest Communications granted restricted stock units (RS
ID: 2583742 • Letter: O
Question
On January 1, 2018, 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, 2019, 4% of the RSUs are forfeited due to executive turnover. Mest chooses the option to account for forfeitures when they actually occur.
Required: 1. to 3. Prepare the appropriate journal entry to record compensation expense on December 31, 2018, December 31, 2019, and December 31, 2020
Explanation / Answer
Vesting period = 3 year
Dec 31, 2018
Total Compensation expense = 30,000,000x15 = 450,000,000
Allocated compensation expense = 450,000,000/3 = 150,000,000
Dec 31, 2019
Total Compensation expense = 30,000,000x15x96% = 432,000,000
Allocated compensation expense = 432,000,000*2/3 - 150,000,000 = 138,000,0000
Dec 31, 2020
Total Compensation expense = 30,000,000x15x96% = 432,000,000
Allocated compensation expense = 432,000,000*3/3 - 288,000,000 = 144,000,0000
Journal Entry
Debit Credit
Dec 31, 2018 Compensation Expense 150,000,000
Provision for Employee Benefit 150,000,000
Dec 31, 2018 Compensation Expense 150,000,000
Provision for Employee Benefit 138,000,000
Dec 31, 2018 Compensation Expense 144,000,000
Provision for Employee Benefit 144,000,000
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