Module 8 i equity recognition and owner financing 8

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Module 8 I Equity Recognition and Owner Financing 8-14 2010 2009 2008 Fair Fair Fair Years ended December 31 Shares Value(1) Shares Value(1) Shares Value(1) on-vested at beginning of year .... 12,850 $36 14,060 $35 14,150 $31 Granted .................... 5,477 39 5,741 38 4,159 42 Vested ......................... (6,938) 35 (6,285) 35 (3,753) 28 Forfeited ....................... (715) 35 (666) 37 (496) (34) on-v~sted at end of year ......... 10,674 $38 12,850 $36 14,060 $35 - Represents per share weighted average fair value of award at date of grant. Information regarding Aon's performance-based plans as of December 31, 2010, 2009 and 2008 follows (shares in thousands, dollars in millions): 2010 2009 2008 Potential RSUs to be issued based on current performance levels . Unamortized expense, based on current performance levels . 6,095 $69 7,686 $154 6,205 $82 The fair value of awards that vested during 2010, 2009 and 2008 was $235 million, $223 million, and $107 million, respectively. The accounting for restricted stock and restricted stock units is similar to that which we 'be for stock options. Specifically, compensation expense is recognized at an amount equal e value of the shares given to employees as those shares are earned. The consequent decline tained earnings is offset by an increase in paid-in capital. Stockholders' equity is, therefore, ected. ccounting for restricted stock is illustrated in the following template: Balance Sheet Income Statement Contrib. Earned it j + + Capital Capital " Net Income Cash Asset Noncash + Assets Liabil- ities Rev- enues Expen- ses action +1,000 y Common II, Stock +2,000 Additional I Paid-In Capital ~ ~S30 per -3,000 :;are,vest- Deferred Compensation ratably ( . _a 6 years:\. ~._oooo._oo oooooooo __ oooooo oo_oo oo oooooooooooo_oo __ oo __ oo __ oooooo oooooo_' ) 00 00 00000000 00000000000000_000000_ :~ifo:=::.~~:=::(~=~=~~: = = company records the restricted stock grants as a share issuance exactly as if the shares were . That is, the common stock account increases by the par value of the shares and additional -in capital increases for the remainder of the share value. However, instead of cash received, company records a deferred compensation (contra equity) account for the value of the shares DC 3,000 CS 1,000 APIC 2,000 DC 3,000 I cs I 1,000 APIC I 2,000 WE 500 DC 500 WE 500 I DC I 500
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8-15 Module 8 I Equity Recognition and Owner Financing L 0 2 Explain and analyze accounting for earned capital, including cash dividends, stock dividends, and comprehensive income. that have not yet been issued. This reduces equity. Thus, granting restricted shares leaves the to dollar amount of equity unaffected. Subsequently, the value of shares given to employees is treated as compensation expense and recorded over the vesting period. Each year, the deferred compensation account is redu by the vested shares and wage expense is recorded, thus reducing retained earnings. Total equi- ty is unaffected by this transaction as the reduction of the deferred compensation contra equic account (thereby increasing stockholders' equity) is exactly offset by the decrease in retain earnings. The remaining deferred compensation account decreases total stockholders' equi_ until the end of the vesting period when the total restricted stock grant has been recognized wage expense. Equity is, therefore, never increased when restricted stock is issued. As of 20I
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