# Restricted stock with forfeiture CPAexcel MCQ

• Creator
Topic
• #195780
levhelm
Member

Wiley Question –

A restricted stock award was granted at the beginning of 2005 calling for 3,000 shares of stock to be awarded to executives at the beginning of 2009. The fair value of one option was \$20 at grant date. During 2007, 100 shares were forfeited because an executive left the firm.

What amount of compensation expense is recognized for 2007?

A. \$14,000

B. \$15,000

C. \$14,500

D. \$13,500

The correct answer is D. Why is it not \$14,500?

Thanks!

Passed

Viewing 4 replies - 1 through 4 (of 4 total)
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• #686037
Anonymous
Inactive

well they already recognized 15,000*2= 30,000 so they have 30,000 left but since he left it needs to be reversed which would be 1,000 a year since 100*20= 2,000. That would be A so not sure how they got D either. they end up with 58,000 total at the end of the four years. if they do 13,500 they end up with 57,000 which doesn't make any sense

#686038
spatel15
Participant

Go from the other way. Think of accumulated expense. I really suck at explaining, but if it doesn't make sense I can try again lol. I definitely thought the same thing, but on second look they are right. I tried to add in a bunch of methods I started to get as I was typing this too lol:

***Whatever happens, the corrections gotta be made in 07, you don't wanna reallocate the prior year's expired expenses to future years: So 08's gotta expense has gotta be \$14500 [(2900 shares*\$20)/4].

You know total expense has gotta equal value of options to be issued: 2900*\$20 = \$58K **I may have referred to options in stock later, just know what I mean =P Too lazy to edit.

So if you did C: which was my first thought as well: you'd have expensed in total [15K+15K+14.5K+14.5K) = 59K total.

If you did A: you'd have a total expense of 58.5K [15K+15K+14K+14.5K]

Now if you “want” you could backwards too, but it's a little more difficult that way, because you just gotta know when you start with the unadjusted expense, you have to start with the right amount that “can” be expensed, i.e. 14.5K

Now, cprv, what you did was also something I did on try #2: You nailed it on the -1K fix(or at least I think you did), but you started with an initial expense of 15K(which no longer applies), when you shoulda started with 14.5K(for the same reason 08's expense has “gotta” be 14.5K). So it's (14.5K-1K)

Or…the worst method, in my opinion: Start with 15K, as you did. The tricky part is noticing that \$500 of the required \$2000 adjustment is apportioned to to '08. That means \$1500 must be apportioned to 07. So it's \$15K-1.5K.

Now if you do D you'd have a total expense of \$58K [15K+15K+13.5K+14.5K]

Key is knowing 08's gotta be 14.5K, and that yearly expense is an allocation of shares to be issued.

#686039
levhelm
Member

This helps. Thanks!

Passed

#1766930
wangwei2136
Participant

The key to solve this problem is the “required balance in liability” of 2007. The liability needs to be adjusted by the new fair value.

adjusted compensation expense per year=(3,000*20-100*20)/4= 14,500
required balance in liability= 14,500*3=43,500
liability accrued in 2005 and 2006= (3,000*200)/4 *2years=15000*2=30,000
compensation expense to be recorded in year 2007 in order to meet the required balance in liability=43,500-30,000=13,500