Question

The Alpha Corp. issues 1,000,000 restricted stock units at a time (1/1/18) when the market price of a share is $10. The vesting period is 3 years.

a. Record 2018 entry

b. Record the 2019 entry assuming it is now known that 40,000 awards will not be granted as the employees have left the company.

c. Record the 2020 entry

d. Record the issuance of stock in 2021

Answer 1

Alpha Corp
Date	Particulars	Debit($)	Credit($)
DEC 31 2018	Compensation Expenses	$3333,333
	Paid In Capital -Restricted Stock		$3333,333
	To Record the Compensation Expenses for the First Year
Dec 31 2019	Compensation Expenses	$3333,333
	Profit and Loss A/c		$400000
	Paid In Capital -Restricted Stock		$2933333
	To Record the Compensation Expenses for the Second Year
	and Transferred the lapsed amount to Profit and Loss account
	(40,000*10-3333,333=2933,333
DEC 31 2020	Compensation Expenses	$3333,334
	Paid In Capital -Restricted Stock		$3333,334
	To Record the Compensation Expenses for the First Year
01-Jan-21
	Pain-in capital -Stock Options	96,00,000
	Common Stock(960,000*1)		9,60,000
	Paid-in-Capital Excess of Par		86,40,000
	(To record Purchase option exercised by stock option holders

Working Notes:

Total Compensation Expenses cost

Fair Market value per share*Number of Shares Awarded

=$10*1000,000=$10,000,000

Compensation Expenses to be recognised for each Year

=Compensation Expense/Vesting Period

=$10,000,000/3=$3333,333

Note:

The face value assumed to be $1

$96, 00,000=$10,000,000-$400,000