Question

A company granted compensation through restricted shares to four of its executives, with a market value of $ 600,000 and a period of service of four years. When granting the compensation plan, the company made the following entry:

Deferred compensation 600,000

Common srock 30,000

Paid-in capital in excess of par value 570,000

In each of the first two years the company made the following entry:

Compensation expense 150,000

Deferred compensation 150,000

During the third year, one of the executives resigned from the company and, therefore, from compensation. At the end of the third year, the company will make the following entry:

a. Compensation expense 150,000

Deferred compensation 150,000

b. Deferred compensation 150,000

Compensation expense 150,000

c. Common stock 7,500

Additional paid-in capital 142,500

Compensation expense 75,000

Deferred compensation 225,000

d. Common stock 7,500

Additional paid-in capital 142,500

Deferred compensation 150,000

Answer 1

Total Compensation expense for 4 years			600000
Less: Comensation expense already recognized in 2 years	300000
Remaining compenssation expense to be recognized		300000
Less: Service terminated so as compensation (600000*1/4)	150000
Net compensation expense to be recognized in next two years	150000
Compensation expense to be recognized in Third year = 150000*1/2 = 75000
Journal entry to be passed:
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Common Stock (30000*1/4)		7500
	Additional paid in capital (570000*1/4)	142500
	Compensation expense		75000
	Deferred Compensation			225000
	(for recognizing the expense and reversal of claim)
Answer is c.
Common Stock $7500
Additional paid in capital $142500
Compensation expense $75000
Deferred compensation   $ 225000