As part of its stock-based compensation package, on January 1, 2016, Weldon Well

Question

As part of its stock-based compensation package, on January 1, 2016, Weldon Well Supplies granted restricted stock units (RSUs) representing 100,000 $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 2019 (vesting date) and expire at the end of 2021. The fair value at December 31, 2016, 2017, 2018, 2019, and 2020, is $16, $12, $16, $10, and $12, respectively. All recipients are expected to remain employed through the vesting date.

For the year ended December 31, 2016, ignoring taxes, the effect of the transaction is to

B. keep the retained earnings unchanged C. increase paid-in capital by $400,000 A. Cannot be determined as the value of the RSUs on the grant date is not known D. increase liability by $400,000

Explanation / Answer

THE ANSWER IS

KEEP RETAINED EARNINGS UNCHANGED.

SHARES =100000 * VALUE ON VESTING DATE 10 = 1000000 / 4 YEAR = 250000 EACH YEAR COMPENSATION EXPENSE

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