ACCOUNTING h. 19 Homework value 10.00 points First Link Services granted 5.2 mil

Question

ACCOUNTING h. 19 Homework value 10.00 points First Link Services granted 5.2 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of S9 per share on the grant date of the restricted stock award 1 Ignoring taxes, what is the total compensation cost pertaining to the restricted shares? (Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50)) otal c cost million (Enter your answer in millions rounded to 2 decimal places (ie, 5,500,000 should be entered as million References Book & Resources Worksheet

Explanation / Answer

Solution:

Part 1 –

Total compensation cost = Number of Share Option granted x Fair Value or Market Price per option

= 5.2 million x $9

= $46.80 million

Total Compensation Cost = $46.80 million

Part 2 –

The $46.8 million total compensation is expensed equally over the 3 years vesting period, reducing earnings by $15.60 million (46.8/3) each year.

Hence,

Effect on earnings decreased by $15.60 million

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