Question

Accounting for Restricted Stock) Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2017. The stock has a fair value of \(120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with the company for 4 years. The par value of the stock is \)5. At December 31, 2018, the fair value of the stock is $145,000.

Instructions

(a) Prepare the journal entries to record the restricted stock on January 1, 2017 (the date of grant), and December 31, 2018.

(b) On March 4, 2019, Yaping leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

Short answer

(a) Unearned compensation will be debited by $120,000, and common stock and paid-in capital excess of par-common stock will be credited $20,000 and $100,000 respectively. Compensation expense will be debited, and unearned compensation will be credited by $30,000, respectively.

(b) Common stock and paid-in capital excess of par- common stock will be debited by $20,000 and $100,000 respectively, and unearned compensation and compensation expense will be credited by $60,000, respectively.

Step-by-step solution

(a) Journal entry

Date	Accounts and Explanation	Debit	Credit
January 1, 2017	Unearned Compensation	$120,000
	Common Stock (4,000 X $5)		$20,000
	Paid-in Capital Excess of Par— Common stock		$100,000
December 31, 2018	Compensation Expense	$30,000
	Unearned Compensation ($120,000 ÷ 4)		$30,000

(b) Journal entry

Date	Accounts and Explanation	Debit	Credit
March 4, 2019	Common Stock	$20,000
	Paid-in Capital Excess of Par— Common stock	$100,000
	Unearned Compensation		$60,000
	Compensation Expense (2 X $30,000)		$60,000