Answer:
a)
the total compensation cost pertaining to the restricted shares is $90 million
b)
Total compensation cost is $81 million
Explanation:
Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company on January 1, 2016, granted 4 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 $22.50 per share on the grant date.
Determine the total compensation cost pertaining to the restricted shares.
Suppose Magnetic-Optical expected a 10% forfeiture rate on the restricted shares prior to vesting. Determine the total compensation cost.
Given that:
common shares market price = $22.50 per share on the grant date
Amount of shares = 4 million = 4000000
Shares price = $1 par common shares
Shares termination years = 3 years
a)
The total compensation cost pertaining to the restricted shares = common shares market price × Amount of shares = 4000000 × 22.5 = 90000000 = $90 million
Therefore, the total compensation cost pertaining to the restricted shares is $90 million
b)
Since the corporation has a forfeiture rate of 10% on restricted shares:
The restricted shares = 10% × $90000000 = 0.1 × 90000000 = 9000000 = $9 million
Total compensation cost = Paid capital - restricted shares = $90 million - $9 million = $81 million
Total compensation cost is $81 million
Question:
The question is not complete. What you need to determine was not stated. Below is the necessary calculation for your question.
(a) Determine the total compensation cost pertaining to the RSU
(b) Prepare the appropriate journal entry to record compensation expenses on December 31, 2013
Answer:
(a) Total compensation cost = $9,000,000
Explanation:
Given data;
Total number of shares = 4,000,000
Fair market value = $22.50
(a) Total compensation cost:
Total compensation cost is calculated using the formula;
Total compensation cost = fair market value * number of shares
= 22.50 * 4,000,000
=$90,000,000
For each year, the compensation cost becomes;
=$90,000,000/3 years
=$30,000,000
(b) See the prepared journal below
Date Particulars Debit Credit
Dec. 31 Compensation expenses $30,000,000
Paid in capital $30,000,000
(restricted stock)
To record compensation expenses
