Question

Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock unit plan, the company on January 1, 2018, granted restricted stock units (RSUs) representing 5 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within three years. The common shares have a market price of $30.00 per share on the grant date. Management’s policy is to estimate forfeitures. Required: 1. Determine the total compensation cost pertaining to the RSUs. 2. & 3. Prepare the appropriate journal entries. 4. Suppose Magnetic-Optical expected a 10% forfeiture rate on the RSUs prior to vesting. Determine the total compensation cost.

Answer 1

Restricted stock units are the stock option plan provided by employer to employees as compensation.
Under this plan, there is restriction on when the units would be sold that is employees will have to serve certain employment period before it can sell the shares.
1.
Total compensation cost pertaining to the RSUs
Total compensation costs = Number of shares granted*Fair value of share on grant date
		5000000*30
		$150,000,000
The compensation costs is $ 150 million
2
No journal entry is required to record the award of restricted shares
3
Journal entry to record the compensation expense
Particulars	Debit	Credit
Compensation expense (150/3)	$50,000,000
Paid in capital - restricted stock		$50,000,000
(To record compensation expense for RSUs)
4
Total compensation costs = Number of shares granted*Fair value of share on grant date*90%
Total compensation costs = 5000000*30*90%
Total compensation costs	$135,000,000
The compensation costs is $135 million