E16 13B (L0 3) (Accounting for Restricted Stock) Holt Company issues 10,000 shares of restricted stock to its new CEO, on January 1, 2020. The stock has a fair value of $260,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if the CEO stays with the company for 5 years. The par value of the stock is $1. At December 31, 2021, the fair value of the stock is $180,000.Instructions(a)Prepare the journal entries to record the restricted stock on January 1, 2020 (the date of grant) and December 31, 2021.(b)On February 22, 2022, the CEO leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

Answer and Explanation:

The journal entries are shown below:

a. Unearned compensation$260,000  

             To Common stock  $10,000(10,000 shares × $1)

              To Paid in capital in excess of par - common stock$250,000

(Being the unearned compensation is recorded)

It increased the common stock and the remaining balance is transferred to the paid in capital so these account are credited while on the other hand the contra equity is decreased so unearned compensation is debited

Compensation expenses$52,000($260,000 ÷ 5 years)

              To      Unearned compensation  $52,000

(being the compensation expense is recorded)

Since there is a compensation expense so the expense account is debited as it increased the expenses while on the other hand we credited the unearned compensation

b. Common stock10,000

Paid in capital in excess of par - common stock$250,000  

               To Compensation expenses  $104,000  ($52,000 × 2 years)

               To Unearned compensation  $156,000

(Being the forfeiture is recorded)

This entry reflects the reversing of the entry with related to the common stock, paid in capital, and compensation expense

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clarify customers’ doubts only when asked.