Question

As part of its stock-based compensation package, on January 1, 2018, Weldon Well Supplies granted restricted stock units (RSUs) representing 100,000 $1 par common shares. At exercise, holders of the RSUs are entitled to receive cash or stock equal in value to the market price of those shares at exercise. The RSUs cannot be exercised until the end of 2021 (vesting date) and expire at the end of 2023. The $1 par common shares have a market price of $6.5 per share on the grant date. The fair value at December 31, 2018, 2019, 2020, 2021, and 2022, is $17.0, $13.0, $17.0, $11.0, and $13.0, respectively. All recipients are expected to remain employed through the vesting date. The RSUs are exercised on June 6, 2023, when the share price is $14.0, and executives choose to receive cash.

Required:
Prepare the appropriate journal entries

Answer 1

Prepare the appropriate journal entry to record the award of RSUs on January 1, 2018.

No entry is required to made on grant date.

2.) Prepare the appropriate journal entries pertaining to the RSUs on December 31, 2018-December 31, 2022

Calculation of compensation expense = Fair value of share * shares awarded =$6.50*100,000 shares=$650,000

Allocation of compensation expense over four years of service (vesting period 2018-2022)

$650,000/4 =$162500 per year

Journal entry December 31,2018,2019,2020,2021
Account	Debit$	Credit$
Compensation Expenses	162,500
Paid in capital-ristricted stock		162,500

(3.) The RSUs remain unexercised on December 31, 2022. Prepare the appropriate journal entry on that date.

Account	Debit$	Credit$
Paid in capital-ristricted stock	650,000
Paid in capita expiration of-ristricted stock		650,000

4.) The RSUs are exercised on June 6, 2023, when the share price is $14, and executives choose to receive cash. Prepare the appropriate journal entry(s) on that date.

Account	Debit$	Credit$
Paid in capita expiration of-ristricted stock	650,000
Compensation Expenses	750,000
Cash		1400000