Question

10) Given the following information, record the following journal entries. On 1/1/17 XYZ company issued 4,000 shares of restricted stock to selected employees. The market value of the shares was $100, the vesting period was 5 years (i.e., the employees had to wait 5 years before the restrictions were lifted. The par value of the stock was $5. a) Date of stock issuance. b) Record compensation expense for 2017. c) Employees holding 1,000 shares left the company on 6/30/2019

Answer 1

Solution to 10(a):

Stock issuance Journal Entries:

The stock issuance journal entry is recorded as follows:

Account	Debit	Credit
APIC	400,000
Common stock (4,000*$100)		400,000
Total	400,000	400,000

Solution to 10 (b):

Year 2017

The total expected stock option compensation cost over the 5 year vesting period is calculated as follows:

Options expected to vest=options*employees option expected to vest= 4000

Stock option compensation cost= options* fair value of option at grant

Stock option compensation cost= 4000*$100=$400,000

Since the vesting period is 5 years and 1year of the service period has now been completed, the business calculates the stock option compensation expense for the year as follows:

Total stock option compensation = $400,000
Vesting period = 5 years
Service period completed = 1 year
Cumulative expense at end of year 1 = Total cost x Service period / Vesting period
Cumulative expense at end of year 1 = $400,000 x 1/5 = $80,000
Previously recognized expense = 0
Stock option compensation expense for year 1 = $80,000-0=$80,000

Stock Option Journal Entries – Year 1

The stock option expense journal entry for the year is recorded as follows.

Stock option expense journal entry – Year 1

Account	Debit	Credit
Stock option compensation expense	80,000
APIC – Stock options		80,000
Total	80,000	80,000

Solution to 10 (c): employees holding 1000 shares left the company on 6/30/2019

The total expected stock option compensation cost is now calculated as follows:

Options expected to vest= 4000-1000=3000

Stock option compensation cost= 3000*$100=$300,000

Since, 1 year+6 months of the service period have now been completed the business calculates the stock option compensation expense for the year as follows:

Expected total stock option compensation= $300,000

Vesting period= 5 Years

Service period completed= 18 months

Cumulative expense at the end of 18 months= $300,000* (3/2)/5= $90,000

Previously recognised expense= $80,000

Stock option compensation expense= $90,000-$80,000=$10,000

Journal entry:

Account	Debit	Credit
Stock option compensation expense	10,000
APIC – Stock options		10,000
Total	10,000	10,000