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Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2021, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within four years. The common shares have a market price of $20.8 per share on the award date. Required: 1. Determine the total compensation cost from these restricted shares. 2.

Sagot :

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Answer:

1. $41,600,000

2. No Entry

3. Dr Compensation Expense 10,400,000

Cr Paid-In-Capital- Restricted Stock 10,400,000

4.$35,360,000.

Explanation:

1. Calculation to the total compensation cost from these restricted shares.

Total compensation cost =$20.8 * 2M Shares

Total compensation cost = $41,600,000

Therefore the total compensation cost from these restricted shares is $41,600,000

2. & 3. Preparation of the appropriate journal entries

2. No Entry

3. Dr Compensation Expense 10,400,000

($41,600,000/ 4yrs)

Cr Paid-In-Capital- Restricted Stock 10,400,000

4. Calculation to determine the total compensation cost, assuming the company follows the fair value approac

Total compensation cost=$20 * 2M Shares * (100%-15%)

Total compensation cost=$20 * 2M Shares * 85%

Total compensation cost= $41,600,000*85%

Total compensation cost= $35,360,000

Therefore the total compensation cost, assuming the company follows the fair value approach is $35,360,000

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