Hammerstein Corporation offers a variety of share-based compensation plans to em
ID: 2591110 • Letter: H
Question
Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2018, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within four years. The common shares have a market price of $20 per share on the award date. Required: 1. Determine the total compensation cost from these restricted shares. 2. & 3. Prepare the appropriate journal entries. 4. Suppose a 15% forfeiture rate was expected prior to vesting. Determine the total compensation cost, assuming the company follows the fair value approach and chooses to anticipate forfeitures at the grant date.
Explanation / Answer
Requirement 1
$20.00 fair value per share
x 2 million shares granted
= $40 million fair value of award
Requirement 2
no entry
Requirement 3
($ in millions)
Compensation expense ($40 million ÷ 4 years).. 10
Paid-in capital – restricted stock............... 10
Requirement 4
$20.00 fair value per share
x 2 million shares granted
x 85% 100% – 15% forfeiture rate
= $34 million fair value of award
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