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In: Accounting

On January 1, 2018, ABC Company awarded 15M of its $1 par common shares to key...

  1. On January 1, 2018, ABC Company awarded 15M of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated by the end 2020. On the date of the grant, the stock had a market price of $3 per share.
  1. What is the total Compensation Expense pertaining to the restricted shares.
  1. What is the journal entry on the date of the grant, January 1, 2018?

  1. What is the journal entry to record the compensation expense on Dec 31, 2018?

  1. What is the journal entry to record the compensation expense on Dec 31, 2019?

  1. What is the journal entry to record the compensation expense on Dec 31, 2020?
  1. What is the journal entry on the lifting of restrictions on December 31, 2020?

Solutions

Expert Solution

1. Total compensation Expense pertaining to the restricted shares.

Total compensation expense = (Market price- exercise price)* No of shares

=($3-$1)*1.5M shares

=$3M

Journal entries

Date Particulars Debit ($) Credit($)
1st Jan 2018 No entry will be passed on grant date.
31st Dec 2018 Employee stock expense account 1M
Employee stock option outstanding account 1M
(Being compensatoin of 1M(3M/3) recognised)
31st Dec 2019 Employee stock expense account 1M
Employee stock option outstanding account 1M
(Being compensatoin of 1M(3M/3) recognised)
31st Dec 2020 Employee stock expense account 1M
Employee stock option outstanding account 1M
(Being compensatoin of 1M(3M/3) recognised)
31st Dec 2020 Cash/Bank 1.5M
Equity Share Capital 1.5M
(Being exercise of 1.5M options at an exercise price of $1)
31st Dec 2020 Employee stock option outstanding account 3M
Securities Premium account 3M
(Being balance transferred to securities premium account)

ekkarill92 answered 3 years ago
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