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 1 year ago

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