Class18 - Dilutive3

Class18 - Dilutive3 - 1 If the employee leaves the company...

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M351 Notes, Class 18: Dilutive Securities and EPS, pages 807-816 Today’s topics: Restricted stock More on EPS A. Restricted stock compensation transfers shares of stock to employees. The restricted shares cannot be sold, transferred, or pledged until the award vests (usually 3 to 5 years). During the vesting period, the company recognizes compensation expense on a straight-line over the vesting period. Compensation expense is usually measured as the market value of the restricted shares on the grand date. Assume ABC Company awards an employee 10,000 restricted shares on April 1, 2003, when the market price of the stock is $15 per share. The restricted stock vests in 5 years and has a par value of $4 per share. April 1, 2003 entry : Unearned compensation ($15 x 10,000). .............. 150,000 Common stock ($4 x 10,000). ........................ 40,000 Paid in capital in excess par ([$15 - $4] x 10,000) 110,000 December 31, 2003 entry : Compensation expense*. ...................................... 22,500 Unearned compensation. ................................ 22,500 *($150,000/5) x 9/12
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Unformatted text preview: 1 If the employee leaves the company prior to vesting, the compensation expense is reversed. Assume the employee awarded the restricted stock leaves on June 30, 2005 ($22,500 + $30,000 = $52,500 was recognized as compensation expense in 2003 and 2004). June 30, 2005 entry : Common stock. ..................................................... 40,000 Paid-in capital in excess par. ................................ 110,000 Compensation expense. .................................. 52,500 Unearned compensation. ................................ 97,500 B. Stock appreciation rights (SARs) grant the employee the appreciation (if any) in stock price between the grant date and the exercise date. Stock appreciation rights may be paid in cash, stock or both. See the example on pages 810 and 811 for a demonstration of the recognition of expense for SARs. C. The comprehensive EPS illustration in Appendix B on pages 812-816 can be a useful tool for identifying what you need to know for EPS calculations and presentations. 2...
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Class18 - Dilutive3 - 1 If the employee leaves the company...

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