Derrick Company issues 4,790 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2012. The stock has a fair value of $121,000 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 $3. At December 31, 2013, the fair value of the stock is $153,200.

(a) Prepare the journal entries to record the restricted stock on January 1, 2012 (the date of grant), and December 31, 2013.

(b) On March 4, 2014, Yaping leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

Answer and Explanation:

The journal entries are as follows

a.

On Jan 1, 2012

Unearned compensation $121,000

To common stock $14,370 (4,790 shares * $3)

To Paid in capital in excess of par value $106,630

(Being the issuance of the restricted stock is recorded)

For recording this we debited the unearned compensation as it decreased the liability and credited the common stock and paid in capital as it increased the stockholder equity

On Dec 31, 2013

Compensation expenses $30,250 ($121,000 : 4 years)

To unearned compensation $30,250

(Being the compensation expense is recorded)

For recording this we debited the compensation expenses as it increased the expenses and credited the unearned compensation as it also increased the laibilities

b.

On Mar 4, 2014

Common stock $14,370 (4,790 shares * $3)

Paid in capital in excess of par value $106,630

To compnesation expenses $60,500 ($30,250 * 2 years)

To Unearned compensation $60,500 ($30,250 * 2 years)

(Being the forefieture of restricted stock is recorded)

For recording this we debited the common stock and paid in capital as it decreased the stockholder equity and credited the compensation expense & unearned compensation as it decreased the expenses and increased the liabilities