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6 December, 18:27

Allied Paper Products, Inc., offers a restricted stock award plan to its vice presidents. On January 1, 2018, the company granted 13 million of its $1 par common shares, subject to forfeiture if employment is terminated within two years. The common shares have a market price of $6 per share on the grant date.

Required:

1. Determine the total compensation cost pertaining to the restricted shares.

2. Prepare the appropriate journal entries related to the restricted stock through December 31, 2019.

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  1. 6 December, 19:33
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    1. The computation of the total compensation cost is shown below:

    = Number of common shares granted * market price per share

    = 13 million shares * $6

    = $78 million

    2. The journal entries are shown below:

    On December 31, 2018:

    Compensation expense A/c Dr $39 million ($78 million : 2 years)

    To Paid-in capital-restricted stock A/c $39 million

    (Being compensation expense recorded)

    On December 31, 2019:

    Compensation expense A/c Dr $39 million ($78 million : 2 years)

    To Paid-in capital-restricted stock A/c $39 million

    (Being compensation expense recorded)

    On December 31, 2019:

    Paid-in capital-restricted stock A/c $78 million

    To common stock A/c $13 million

    To paid-in capital in excess of par $65 million

    (Being restricted stock is recorded and the remaining balance is credited to the paid-in capital in excess of par account)
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