Exercise 19-31 Restricted stock units; cash settlement (Appendix B) As part of i
ID: 2558454 • Letter: E
Question
Exercise 19-31 Restricted stock units; cash settlement (Appendix B) As part of its stock-based compensation package, on January 1, 2018, International Electronics granted restricted stock units (RSUs) representing 110 million $1 par common shares. At exercise, holders of the RSUs are entitled to receive cash or stock equal in value to the market price of those shares at exercise. The RSUs cannot be exercised until the end of 2021 (vesting date) and expire at the end of 2023. The $1 par common shares have a market price of $6 per share on the grant date. The fair value at December 31, 2018, 2019 2020, 2021, and 2022, is $8, $6, $8, $5, and $6, respectively. All recipients are expected to remain employed through the vesting date. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. Required: 1.to 3. Prepare the appropriate journal entries pertaining to the RSUs on January 1, 2018 and December 31, 2018-December 31, 2021 The RSUs remain unexercised on December 31, 2022, prepare the appropriate entry. 4. The RSUs are exercised on June 6, 2023, when the share price is $6.50, and executives choose to receive cash. Prepare the appropriate journal entry(s) on that dateExplanation / Answer
January 1 2018-
No entry shall be passed
December 31, 2018
Total compensation expenses = fair value at the year-end * number of shares
= $8 * 110 million = $ 880 million
Number of vesting period = 4 years i.e. from January 1, 2018 to December 31, 2021
Compensation expenses to be recognized as on December 31, 2018 = $880 million / 4 = $ 220 million
Entry
Compensation expenses Dr $ 220 million
To provision for restricted stock units Cr. $ 220 million
December 31, 2019
Total compensation expenses = fair value at the year-end * number of shares
= $6 * 110 million = $ 660 million
Compensation expenses to be recognized as on December 31, 2019 = $660 million / 4 * 2 = $ 330 million
Compensation already recognized in year 1 i.e. December 31, 2018 = $ 220 million
Compensation expenses to be recognized in the year ended December 31, 2019 = $ 110 million
Entry
Compensation expenses Dr $ 110 million
To provision for restricted stock units Cr. $ 110 million
December 31, 2020
Total compensation expenses = fair value at the year-end * number of shares
= $8 * 110 million = $ 880 million
Compensation expenses to be recognized as on December 31, 2020 = $880 million / 4 * 3 = $ 660 million
Compensation already recognized in year 1 and 2 i.e. Dec 31, 2018 and 2019 = $ 330 million
Compensation expenses to be recognized in the year ended December 31, 2020 = $ 330 million
Entry
Compensation expenses Dr $ 330 million
To provision for restricted stock units Cr. $ 330 million
December 31, 2021
Total compensation expenses = fair value at the year-end * number of shares
= $5 * 110 million = $ 550 million
Compensation expenses to be recognized as on December 31, 2021 = $550 million = $ 550 million
Compensation already recognized in year 1 and 2 i.e. Dec 31, 2020, 2019, 2018 = $ 660million
Excess compensation expenses to be reversed in the year ended December 31, 2021 = $ 110 million
Entry
Provision for restricted stock units Dr $ 110 million
Compensation expenses Cr $ 110 million
December 31, 2022
No entry shall be passed
June 6, 2023
Provision for restricted stock units Dr. 550
Compensation expesnes Dr. 165
To Bank Cr. 715
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