Compensation questions

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    Topic
  • #180748
    calicpa
    Participant

    Can someone point out what I am missing? Why does one use the value at time of contract and the other at end of contract price? Which one is usually used??

    Renwood, Inc. contracted for services to be provided over a period of time in return for 2,000 shares of Renwood’s $5 par common stock when the service is completed. At the time, Renwood stock was selling for $10 per share. When the service was completed, Renwood’s stock price was $12 per share. Therefore, Renwood

    A. Recognizes $24,000 of expense.

    B. Increases the common stock account $12,000.

    C. Increases contributed capital in excess of par $10,000.

    D. Credits a liability for $20,000.

    Correct!

    The total owners’ equity increase of $20,000 (2,000 shares x $10) is recorded at signing. Of that amount, the common stock account will receive $10,000 (2,000 shares x $5 par). Therefore, the remainder ($10,000) is allocated to contributed capital in excess of par. Subsequent changes in stock price do not change the total amount of OE recorded.

    llam, Inc. contracted for services to be provided over a period of time with full payment in Allam’s $2 par common stock when the service is completed. At the time of the agreement, Allam stock was trading at $20 per share. The agreed-upon total value of the contract is $20,000. When the service was completed, Allam’s stock price was $25 per share. Therefore, Allam

    A. Recognizes $25,000 of expense.

    B. Increases the common stock account $1,600.

    C. Increases contributed capital in excess of par $23,000.

    D. Debits a liability for $25,000.

    Correct!

    The value of the stock to be issued is $20,000. At time of issuance, the stock price is $25. Therefore, 800 shares are issued ($20,000/$25). The par value of the stock is $2, requiring a credit of $1,600.

    Update: Found Accounting Compensation Report – GoingConcern.com

    BEC - 84, 4/6/13
    AUD - 77, 5/28/13
    REG - 83, 4/12/14
    FAR - 83, 10/3/13

    Ethics - 90% 4/24/13

    150 unit education requirement met!
    Work experience met!

Viewing 4 replies - 1 through 4 (of 4 total)
  • Author
    Replies
  • #454508
    calicpa
    Participant

    bump

    BEC - 84, 4/6/13
    AUD - 77, 5/28/13
    REG - 83, 4/12/14
    FAR - 83, 10/3/13

    Ethics - 90% 4/24/13

    150 unit education requirement met!
    Work experience met!

    #454638
    calicpa
    Participant

    bump

    BEC - 84, 4/6/13
    AUD - 77, 5/28/13
    REG - 83, 4/12/14
    FAR - 83, 10/3/13

    Ethics - 90% 4/24/13

    150 unit education requirement met!
    Work experience met!

    #454510
    red3biggs
    Member

    In the 1st example, the number of shares was predetermined, therefore at the time of service completed, the price of the shares was irrelevant, the value was already determined at the time the agreement was made.

    In the 2nd example, the value of the work is agreed upon, but the number of shares used to pay for the service was not agreed upon. So, the value the company used was the $25 per share (later price), not the $20 (earlier price) like in the first example.

    I hope that is clear and helpful

    AUD: 8/17/2012
    REG: 4/29/2013
    BEC: 7/8/2013
    FAR: 1/16/2014

    #454640
    red3biggs
    Member

    In the 1st example, the number of shares was predetermined, therefore at the time of service completed, the price of the shares was irrelevant, the value was already determined at the time the agreement was made.

    In the 2nd example, the value of the work is agreed upon, but the number of shares used to pay for the service was not agreed upon. So, the value the company used was the $25 per share (later price), not the $20 (earlier price) like in the first example.

    I hope that is clear and helpful

    AUD: 8/17/2012
    REG: 4/29/2013
    BEC: 7/8/2013
    FAR: 1/16/2014

Viewing 4 replies - 1 through 4 (of 4 total)
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