“Fair value” is equal to the number of RSUs that are expected to be earned (or actually earned) multiplied by the grant date fair market value of a share of company stock. At the end of the requisite service period, compensation cost is trued-up to equal the “fair value” of the RSUs that actually vest.
How do you value restricted stock?
RSUs are assigned a fair market value at the time they become vested. In other words, if the company’s stock is valued at $20 per share at the time the RSU becomes vested, then the per-unit value of the RSUs is $20.
What are the advantages of using restricted stock to compensate employees?
The advantages of restricted stock bonus/purchase plans are (1) the employee can make the §83(b) election; (2) the employee is generally entitled to capital gain treatment on sale of vested stock; and (3) the Company gets a wage deduction without paying cash wages.
What happens when you accept a restricted stock award?
Once an employee is granted a Restricted Stock Award, the employee must decide whether to accept or decline the grant. If the employee accepts the grant, he may be required to pay the employer a purchase price for the grant. After accepting a grant and providing payment (if applicable) the employee must wait until the grant vests.
How are restricted shares treated in stock based compensation?
Common stock and APIC is impacted immediately by the entire value at grant date but is offset by a contra-equity account, so there is no net impact. The value recognized for each restricted share is the same as its current share price (for non-dividend paying stock).
What happens to journal entries for restricted stock?
The journal entries are as follows: Nothing happens at the grant date. Unlike restricted stock, there are no offsetting journal entries to equity at the grant date. The stock options do not impact the common stock and APIC balance at the grant date.
How is restricted stock recognized on the income statement?
Restricted stock is recognized on the income statement over the service period. Once the restricted stock is vested, the employees that own them can trade them and do whatever they want with them. However, if an employee leaves prior to vesting, the stock based compensation expense is reversed via the income statement.
