PHN Foods granted 18 million of its no par common shares to executives, subject
ID: 2530274 • Letter: P
Question
PHN Foods granted 18 million of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $5 per share on January 1, 2017, the grant date. Required: 1. What journal entry will PHN Foods prepare to record executive compensation regarding these restricted shares at December 31, 2017 and December 31, 2018? 2. When calculating diluted EPS at December 31, 2018, what will be the net increase in the denominator of the EPS fraction if the market price of the common shares averages $5 per share during 2018? Complete this question by entering your answers in the tabs below Required 1 Required 2 What journal entry will PHN Foods prepare to record executive compensation regarding these restricted shares at December 31, 2017 and December 31, 2018? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)Explanation / Answer
Answer 1. Journal Entry (Amount in millions) Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 Compensation Expense 30 (18 Million shares X $5) / 3 Paid in Capital - Restricetd Stock 30 (To record the compensation expense) 31-Dec-18 Compensation Expense 30 (18 Million shares X $5) / 3 Paid in Capital - Restricetd Stock 30 (To record the compensation expense) Answer 2. Net Increase in Denomoinator -12 million shares The total compensation for the award is $90 million ($5 market price per share × 18 million shares). Because the stock award vests over three years, it is expensed as $30 million each year for three years. At the end of 2018, the second year, $60 million has been expensed and $30 million remains unexpensed, so $30 million would be the assumed proceeds in an EPS calculation. If the market price averages $5 the $ million will buy back 6 million shares and we would add to the denominator of diluted EPS 12 million common shares.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.