Question

Farmers Technology is a software company based in New Baden. On January 1, 2017, the company granted 20,000 shares of restricted stock to its CEO. The restricted stock had a par value of $1 and a fair value of $15 per share at issuance. The service period is 4 years. The restricted stock also has a performance condition, where the restricted stock will only vest if the company’s profits grow by 50% or more over the 4-year service period.
The likelihood that the company will meet the performance condition was determined at each of these dates as follows:
December 31, 2017 = not probable
December 31, 2018 = probable
Your task is to provide the necessary journal entries in 2017 and 2018.                  

Answer 1

Journal Entry are as follows :

		Debit	Credit
Jan 1, 2017	Unearned Compensation A/c	$           3,00,000
	To Common Stock		$           20,000
	To Additional Paid in Capital - Stock Option		$       2,80,000
	(Being company granted 20,000 shares of restricted stock of par value $1 and fair value $15)

Dec 31, 2017 No Entry

(The stock granted are with performance condition and the fulfilment of condition is not probable. Hence we will not record the compensation expense on Dec 31, 2017)

Dec 31, 2018	Compensation Expense A/c	$           1,50,000		$3,00,000 * 2 / 4
	To Unearned Compensation		$       1,50,000
	(Being Compensation expense recorded as it is probable that the condition will be fulfilled)