Magnetic-Optical Corporation offers a variety of share-based compensation plans

Question

Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company on January 1, 2016, granted 8 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within three years. The common shares have a market price of $12.00 per share on the grant date.

Determine the total compensation cost pertaining to the restricted shares.

Prepare the appropriate journal entries.

Record the award of restricted shares on January 1, 2016.

Record compensation expense on December 31, 2016.

Suppose Magnetic-Optical expected a 10% forfeiture rate on the restricted shares prior to vesting. Determine the total compensation cost.

Explanation / Answer

1. 8 million shares granted X $12 per share = $96 million

2. No entry is made on the grant date

3. Compensation expense ( 96 million / 3 years) 32 million

Paid in capital restricted stock 32 million

4. 8 million shares X 12 FVX 90% = $86.4

100% - 10% forfeitetted = 90%

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