Question

In: Accounting

Lima Corp. offers a variety of share-based compensation plans to employees. Under its restricted stock unit...

Lima Corp. offers a variety of share-based compensation plans to employees. Under its restricted stock unit plan, the company on January 1, 2021, granted restricted stock units (RSUs) representing 7 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 $27.00 per share on the grant date. Management’s policy is to estimate forfeitures.
  
Required:

1. Determine the total compensation cost pertaining to the RSUs.

Total compensation cost:


2. Prepare the appropriate journal entry to record the RSUs on January 1, 2021.

Record the award of restricted shares on January 1, 2021:


3. Prepare the appropriate journal entry to record compensation expense on December 31, 2021.

Record compensation expense on December 31, 2021:


4. Suppose Lima Corp. expected a 10% forfeiture rate on the RSUs prior to vesting. Determine the total compensation cost:



Solutions

Expert Solution

1. Determine the total compensation cost pertaining to the RSUs. Total compensation cost:

The compensation cost is computed as given below:

Number of shares       7,000,000
Mkt value                    27
Total Compensation Cost 189,000,000

2. Prepare the appropriate journal entry to record the RSUs on January 1, 2021. Record the award of restricted shares on January 1, 2021:

The details given are:

Number of shares       7,000,000
Mkt value                    27
Total Compensation Cost 189,000,000
Par Value per share                      1
Total Value with respect to Common Stock       7,000,000

The entry shall be on Grant Date

Date Account Debit Credit
January 1 2021 Unearned Compensation- Equity Account 189,000,000
Common Stock       7,000,000
Paid in Capital- in Excess of Par 182,000,000

3. Prepare the appropriate journal entry to record compensation expense on December 31, 2021. Record compensation expense on December 31, 2021:

On Dec 31, 2021, 1/3 cost shall be recorded as the service period required is 3 years.

Date Account Debit Credit
December 31 2021 Compensation Expense- PL     63,000,000
Unearned Compensation- Equity Account     63,000,000

4. Suppose Lima Corp. expected a 10% forfeiture rate on the RSUs prior to vesting. Determine the total compensation cos

Total Compensation Cost 189,000,000
less 10% expected forefeiture     18,900,000
Net Compensation Cost 170,100,000

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock unit...
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...
Heidi Software Corporation provides a variety of share-based compensation plans to its employees. Under its executive...
Heidi Software Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2021, that permit executives to acquire 11 million of the company’s $1 par common shares within the next five years, but not before December 31, 2022 (the vesting date). The exercise price is the market price of the shares on the date of grant, $52.00 per share. The fair value of the 11 million...
As part of its stock-based compensation package, on January 1, 2018, International Electronics granted restricted stock...
As part of its stock-based compensation package, on January 1, 2018, International Electronics granted restricted stock units (RSUs) representing 150 million $1 par common shares. At exercise, holders of the RSUs are entitled to receive cash or stock equal in value to the market price of those shares at exercise. The RSUs cannot be exercised until the end of 2021 (vesting date) and expire at the end of 2023. The $1 par common shares have a market price of $6...
As part of its stock-based compensation package, on January 1, 2018, Weldon Well Supplies granted restricted...
As part of its stock-based compensation package, on January 1, 2018, Weldon Well Supplies granted restricted stock units (RSUs) representing 100,000 $1 par common shares. At exercise, holders of the RSUs are entitled to receive cash or stock equal in value to the market price of those shares at exercise. The RSUs cannot be exercised until the end of 2021 (vesting date) and expire at the end of 2023. The $1 par common shares have a market price of $5.9...
Discuss the similarities and differences in various stock-based compensation plans.
Discuss the similarities and differences in various stock-based compensation plans.
Begining of year 1 Issued 6,000 restricted share units and 10,000 stock options to employees. The...
Begining of year 1 Issued 6,000 restricted share units and 10,000 stock options to employees. The shares are currently trading for $10 per share. The option exercise price is set equal to $10 and the fair value of each option is $3. The vesting service period for the restricted share units and stock options is 18 months. Other information Given: At the end of year 2 employees exercised all of their 10,000 options. The fair value of the firm’s stock...
Begining of year 1 Issued 6,000 restricted share units and 10,000 stock options to employees. The...
Begining of year 1 Issued 6,000 restricted share units and 10,000 stock options to employees. The shares are currently trading for $10 per share. The option exercise price is set equal to $10 and the fair value of each option is $3. The vesting service period for the restricted share units and stock options is 18 months. Other information: The firm expects all of the employees receiving restricted share units and stock options will remain for the 18 month required...
A business has had to limit the amount of insurance plans it offers to its employees...
A business has had to limit the amount of insurance plans it offers to its employees in order to control costs. In spite of this attempt at maintaining some benefit level, employee satisfaction levels have declined at a far greater level than management expected, even though the two plans being offered to the employees were the two most popular plans selected by the employees in the prior years from the five that were offered. What is happening? A) The employees...
JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based...
JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, JBL granted options to key officers on January 1, 2018. The options permit holders to acquire 5 million of the company's $1 par common shares for $31 within the next six years, but not before January 1, 2021 (the vesting date). The market price of the shares on the date of grant is $35 per share....
SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based...
SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 21 million of the company’s $1 par common shares for $14 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of grant is $16 per share....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT