Question

Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock unit plan, the company on January 1, 2021, granted restricted stock units (RSUs) representing 7 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 $27.00 per share on the grant date. Management’s policy is to estimate forfeitures.
  
Required:

1. Determine the total compensation cost pertaining to the RSUs.
2. Prepare the appropriate journal entry to record the RSUs on January 1, 2021.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2021.
4. Suppose Magnetic-Optical expected a 10% forfeiture rate on the RSUs prior to vesting. Determine the total compensation cost.

Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 Req 2 and 3 Req 4 Determine the total compensation cost pertaining to the RSUS. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) Total compensation cost $ 189 million < Reg 1 Req 2 and 3 >

Answer 1

Your answer to Requirement 1 and 3 are correct. Hence, I am helping you with the wrong parts of the solution only.

Requirement 2:

No journal entry required on the grant date of Restrivted Stock units. Therefore, no entry will appear on January 1, 2021.

Requirement 4:

Total Compensation Cost = Number of Shares * Market Value per share * (1 - expected forefiture)

= 7 million * $27 * (1 - 0.10)

= $170.1 million