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12 October, 21:16

Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2021, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within four years. The common shares have a market price of $20 per share on the award date.

Required:

1. Determine the total compensation cost from these restricted shares. 2. & 3. Prepare the appropriate journal entries. 4. Suppose a 15% forfeiture rate was expected prior to vesting. Determine the total compensation cost, assuming the company follows the fair value approach and chooses to anticipate forfeitures at the grant date.

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  1. 12 October, 21:18
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    A. $40,000,000

    B. No entry

    C. Dr Compensation Expense 10,000,000

    Cr Paid-In-Capital - Restricted Stock 10,000,000

    D. $34,000,000

    Explanation:

    A.$20 * 2M Shares

    = $40,000,000

    B. No Entry

    C.

    Dr Compensation Expense 10,000,000

    ($40,000,000 / 4yrs)

    Cr Paid-In-Capital - Restricted Stock 10,000,000

    D.$20 * 2M Shares * 85%

    = $40,000,000*85%

    = $34,000,000
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