Magnetic-Optical Corporation 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 19 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 $6.00 per share on the grant date. Management’s
policy is to estimate forfeitures.
Required:
1. Determine the total compensation cost
pertaining to the RSUs.
2. Prepare the appropriate journal entry to record
the RSUs on January 1, 2021.
3. Prepare the appropriate journal entry to record
compensation expense on December 31, 2021.
4. Suppose Magnetic-Optical expected a 10%
forfeiture rate on the RSUs prior to vesting. Determine the total
compensation cost.
1) total compensation cost = no of share*market price |
total compensation cost = 19*6 = 114 Million |
2) & 3) Journal entries (figures in million) | |||
Date | Particulars | Debit | Credit |
31-12-2021 | compensation expenses (114/3) | 38 | |
paid in capital-restricted stock | 38 | ||
31-12-2022 | compensation expenses (114/3) | 38 | |
paid in capital-restricted stock | 38 | ||
31-12-2023 | compensation expenses (114/3) | 38 | |
paid in capital-restricted stock | 38 |
4) total compensation expenses = (19 million*6*90%) = 102.60 million |
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