Question

On January 1, 2017 (the date of grant), Lutz Corporation issues 2,000 shares of restricted stock to its executives. The fair value of these shares is \(75,000, and their par value is \)10,000. The stock is forfeited if the executives do not complete 3 years of employment with the company. Prepare the journal entry (if any) on January 1, 2017, and on December 31, 2017, assuming the service period is 3 years.

Short answer

Unearned compensation will be debited with $75,000, Common Stock will be credited with $10,000, and Paid-in Capital in Excess of Par—Common will be credited with $65,000.Compensation Expenses will be debited with $25,000 and Stock Unearned Compensation with $25,000.

Step-by-step solution

The information given in the question is as follows:

Restricted stock 2000 shares

Fair value $75,000

Par value $10,000

Unearned Compensation $25,000 ($75,000 ÷ 3)

Journal entry

Date	Description	DEBIT	CREDIT
1/1/17	Unearned Compensation	$75,000
	Common Stock		$10,000
	Paid-in Capital in Excess of Par—Common Stock		$65,000
	Being issue 2000 shares
12/31/17	Compensation Expense	$25,000
	Unearned Compensation		$25,000
	Being shares are forfeited