Question

Accounting for Restricted Stock Awards Bendigo Technology is a software company based in Omaha. 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 I previously solved this problem but was told that my third transaction was wrong, can someone help me?

Journal entries

1-Jan-17 (dr) Unearned Compensation $300,000.00

1-Jan-17 (cr) Common Stock $20,000.00

1-Jan-17 (cr) Additional Paid in Capital - Stock Option $280,000.00

31-Dec-17 No entry -

(dr)31-Dec-18 Compensation Expenses $75,000.00

(cr)31-Dec-18 Unearned Compensation $75,000.00

Answer 1

For the third transaction the entry passed by you is correct but the amount of $75000 is incorrect since the amount to be debited to compensation expense should be for 2 years i.e. Dec 17 & Dec 18 because 2 years of service period are over on December 31, 2018 and at this time it is probable that the company profit would grow by 50% after 4 years of service

Therefore correct entry for third transaction is as below

31-Dec 18. Dr : Compensation expense. $150000

Cr: Unearned compensation. $150000

Computation = $300000*2/4 = $150000