On January 1, 2018, David Mest Communications granted restricted stock units (RS
ID: 2563863 • Letter: O
Question
On January 1, 2018, David Mest Communications granted restricted stock units (RSUs) representing 40 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $12 per share on the grant date. At the date of grant, Mest anticipated that 6% of the recipients would leave the firm prior to vesting. On January 1, 2019, 5% of the RSUs are forfeited due to executive turnover. Mest chooses the option to account for forfeitures when they actually occur.
Required:
1. to 3. Prepare the appropriate journal entry to record compensation expense on December 31, 2018, December 31, 2019, and December 31, 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
Explanation / Answer
40million shares of $1 par common stock.
The market price on the grant date = $12
Total compensation = 40 x $12 = $480
The vesting period is 3 years. therefore the compensation of $480 million needs to be recorded over a three year period., expensing $160 million each year subject to forefeitures.
1. Entry to record the grant of RSUs
2. To record the compensation expese on December 31, 2018
3. To record forfeiture of 5% of RSU's
4. To record compensation expense for 2019.
Balance in deferred expense account = $480 - $160 - $24 = $296
This is to be expensed for the years 2019 and 2020.
5. To record expense for 2020
Date Account title Debit Credit Jan.1, 2018 Deferred compensation expense $480 Common stock ($1 per share x 40,000,000) $40 APIC - common stock (40,000,000 x $11) $440