Question

Acorn Limited is a listed company based in Vermont. On January 1, 2018, the company granted 1,000 share units to its CFO. Each share unit has a contractual service period of three years and a vesting condition based on the details below.

At the end of 2020, each share unit is convertible into 100 common shares of Acorn Limited if both of the following criteria are met:

2018-2020 Accumulated company net income is greater than $5 million.

2018-2020 Stock price increase is greater than 25%.

On the grant date, the company’s common shares had a fair value of $6 per share and the company was expected to meet both of the criteria above.

During 2018 and 2019, the company was expected to meet both of the criteria above. However, during 2020 the company’s stock price decreased and the company did not meet the stock price increase criteria at the end of the year.

The company’s accountant has asked for your help to check the compensation costs recorded for these share units during 2018-2019 and record the appropriate journal entry at the end of 2020.

End of 2018 -> 100*6*(1/3)=200

End of 2019-> (100*6(2/3))-200=200

Ignore the effects of taxes.

what are the journal entries for 2018,2019,&2020?

Answer 1

Ans:

Particulars   Amount

31/12/2018 a) Employee compensation a/c dr. 200

To share based payment reserve a/c 200

(Being expense recognised to emloyee compensation account & create liabilty for equity )

b) Profit and loss a/c dr. 200

To Employee compensation a/c 200

(being expense charged to profit and loss a/c)

31/12/2019

a) Employee compensation a/c dr. 200

To share based payment reserve a/c 200

   (Being expense recognised to emloyee compensation account & create liabilty for equity )

b) Profit and loss a/c dr. 200

To Employee compensation a/c 200

   (being expense charged to profit and loss a/c)

31/12/2020

a) share based payment reserve a/c 400

To Profit and loss a/c 400

(Being combined entry reversed as condition not satisfied in 2020)