Question

Accounting for Restricted Stock Awards

Geelong Technology (GT) is a software company based in Boston. Since January 1, 2015, the company has granted restricted stock to its CEO at the beginning of each year to help boost future company performance. Vesting for each award occurs if the CEO stays employed at the company for a period of two years from the grant of the award.

The par value of the stock is $1.

                                                           

Grant Date	Number of shares	Fair value per share	Service period
1/1/2015	10,000	$6	1 year
1/1/2016	15,000	$8	2 years
1/1/2017	15,000	$10	2 years
1/1/2018	20,000	$11	3 years

It is now September 13, 2018 and the CEO leaves the company.

Create the Journal Entries with calculations in accordance for US GAAP for all events.

Answer 1

Journal Entries

Grant date 1/1/2015 Contra Equity-Unearned Compensation Dr $ 60000

To Common stock & APIC-Common Stock $ 60000

(Being restricted stock recorded on grant date)

On 1/1/2016

Retained Earnings--SBC Expenses Dr $ 60000

To Contra equity-Unearned Compensation $ 60000

(As entry made for whole amount as its completion of service period of one year only)

1/1/2016 is grant date for 15000 shares, value is $ 120000 (15000×$8)

Contra equity-Unearned Compensation Dr $ 120000

To Common stock & APIC-Common Stock $ 120000

(Being grant date entry made)

On 1/1/2017 end of one year value is $ 60000 ($120000/2 service period)

Retained Earnings-SBC Expenses Dr $ 60000

To Contra Equity-Unearned Compensation $ 60000

(Entry made for completion of one year)

1/1/2017 Grant date for 15000 shares @ $10 service period 2 years, Value is $ 150000 (15000×$10)

Contra Equity-Unearned Compensation Dr $ 150000

To Common stock & APIC- Common stock $ 150000

(Being entry made for grant date)

On 1/1/2018 end of two years of share granted on 1/1/2016

Retained Earnings-SBS Expenses Dr $ 60000

To Contra Equity-Unearned Compensation $ 60000

(Being entry made for completion of two years)

On 1/1/2018 completion of one year of 15000 shares granted on 1/1/2018, value is $ 75000 ($150000÷2 years of service period)

Retained Earnings-SBC Expenses Dr $ 75000

To Contra Equity-Unearned Compensation $ 75000

(Being entry made for completion of one year)

On 1/1/2018 Grant date of 20000 shares @ $11, value is $ 220000

Contra Equity-Unearned Compensation Dr $ 220000

To Common stock & APIC- Common stock $ 220000

(Being grant date entry made)

On 13 September 2018 CEO leave the company and share granted on 1/1/2018 will be forfeited as the CEO leave the company before completion of vesting period and therefore stock based compensation (SBC) will be reversed via income statement.

Contra Equity-Unearned Compensation Dr $ 75000

To Retained Earnings-SBC Expenses $ 75000

(Being entry made for forfeiture of share as CEO left the organisation befor completion of vesting period)