Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its
restricted stock award plan, the company on January 1, 2016, granted 4 million of its $1 par common shares to
various division managers. The shares are subject to forfeiture if employment is terminated within three years.
The common shares have a market price of $22.50 per share on the grant date.
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2016.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2016.
4. Suppose Magnetic-Optical expected a 10% forfeiture rate on the restricted shares prior to vesting. Determine
the total compensation cost.