On January 1, 2017, a company issued its employees 20,000 shares of restricted s
ID: 2556540 • Letter: O
Question
On January 1, 2017, a company issued its employees 20,000 shares of restricted stock. On January 1, year 2, the company issued to its employees an additional 10,000 shares of restricted stock. Additional information about the company's stock is as follows: 9. Date 1/1/2017 12/31/2017 1/1/2018 12/31/2018 Fair Value of Stock (Per share) $20 $22 $25 $30 The shares vest at the end of a four-year period. There are no forfeitures. What amount should be recorded as compensation expense for the 12-month period ended 12/31/2018?Explanation / Answer
Total compensation cost = Market price of the share on date of grant * number of restricted shares awarded
Total compensation cost for year 1 = $20 * 20,000 = $400,000
Total compensation cost for year 2 = $25 * 10,000 = $250,000
The total compensation cost is allocated to compensation expense on a straight-line basis over the time period in which employee is expected to provide service. As mentioned in the question, the company has to provide a four year of service period. The total compensation expense for 12 months at the end of December 2018 is one-fourth of year one compensation cost and one-fourth of year two compensation cost.
Hence total compensation cost = (1/4 * $400,000) + (1/4 * $250,000) = $100,000+$62,500 = $162,500
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