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.

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)