Question

ABC grants 1,000 new shares of $5 par common stock to each of five executives on January 1, 2021. The 5,000 shares have a total fair value of $87,000 at grant. The shares will vest on December 31, 2023 after three years (not prorated) of continued employment with ABC. ABC expects four employees to fulfill the vesting requirements, and no other restrictions apply.

1. Prepare the journal entry to record compensation expense at 12/31/21.

Compensation Expense 29,000

APIC- restricted stock 29,000

87,000/3 years = 29,000

2. Prepare the journal entry to record compensation expense at 12/31/22.

Compensation Expense 29,000

APIC – restricted stock 29,000

87,000/3 years = 29,000

3. If all five executives unexpectedly left the company on 1/1/23, what entry would ABC prepare that day/year?

4. If instead all five executives remain with the company through all of 2023, what entry or entries would ABC prepare in 2023?

APIC- restricted stock 87,000

Common stock

APIC- common

Answer 1

.

		Journal Entries for ABC		(Amt in $)
Points	Date	Particulars	Debit	Credit
1	Year 1
	31/12/2021	Compensation Exp	29000
		APIC-Restricted Stock		29000
2	Year 2
	31/12/2022	Compensation Exp	29000
		APIC-Restricted Stock		29000
3	If all the five executives unexpectedly leave the company on 1/1/2023, the stock option compnesation expense debited earlier in last two years will be reveresed and the stock option would be forfeited
	Year 3
	1/1/2023	APIC-Restricted Stock	58000
		Compensation Exp		58000
4	If all five executives remains with the company through all of 2023:
	Year 3
	31/12/2023	Compensation Exp	29000
		APIC-Restricted Stock		29000
	31/12/2023	Cash	25000
		Common Stock		25000
	31/12/2023	APIC-Restricted Stock	87000
		APIC-Common Stock		87000