Question

Allied Paper Products, Inc., offers a restricted stock award plan to its vice presidents. On January 1, 2018, the company granted 13 million of its $1 par common shares, subject to forfeiture if employment is terminated within two years. The common shares have a market price of $6 per share on the grant date.

Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entries related to the restricted stock through December 31, 2019.

Answer 1

Step-by-step explanation:

1. The computation of the total compensation cost is shown below:

= Number of common shares granted × market price per share

= 13 million shares × $6

= $78 million

2. The journal entries are shown below:

On December 31, 2018:

Compensation expense A/c Dr $39 million ($78 million ÷ 2 years)

To Paid-in capital—restricted stock A/c $39 million

(Being compensation expense recorded)

On December 31, 2019:

Compensation expense A/c Dr $39 million ($78 million ÷ 2 years)

To Paid-in capital—restricted stock A/c $39 million

(Being compensation expense recorded)

On December 31, 2019:

Paid-in capital—restricted stock A/c $78 million

To common stock A/c $13 million

To paid-in capital in excess of par $65 million

(Being restricted stock is recorded and the remaining balance is credited to the paid-in capital in excess of par account)