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Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2020. The stock has a fair value of $120,000 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 $5. At December 31, 2021, the fair value of the stock is $145,000.Instructionsa. Prepare the journal entries to record the restricted stock on January 1, 2020 (the date of grant), and December 31, 2021.b. On March 4, 2022, Yaping leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

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Answer:

A. January 1, 2020

Dr Unearned Compensation 120,000

Cr Common Stock 20,000

Cr Paid-in Capital Excess of Par—Common stock 100,000

December 31, 2021

Dr Compensation Expense30,000

Cr Unearned Compensation 30,000

B. March 4, 2022

Dr Common Stock 20,000

Dr Paid-in Capital Excess of Par 100,000

Cr Unearned Compensation 60,000

Cr Compensation Expense 60,000

Explanation:

Preparation of the journal entry (if any) to account for this forfeiture.

A. January 1, 2020

Dr Unearned Compensation 120,000

Cr Common Stock 20,000

(4,000 * $5)

Cr Paid-in Capital Excess of Par—Common stock 100,000

(120,000-100,000)

December 31, 2021

Dr Compensation Expense30,000

Cr Unearned Compensation 30,000

($120,000 ÷ 4)

B. March 4, 2022

Dr Common Stock 20,000

(4,000 * $5)

Dr Paid-in Capital Excess of Par 100,000

[(60,000+60,000)-20,000]

Cr Unearned Compensation 60,000

Cr Compensation Expense 60,000

(2 * $30,000)

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