EG Corporation granted restricted stock units (RSUs) representing 32 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $6 per share on the grant date. Required: 1. Ignoring taxes, determine the total compensation cost pertaining to the restricted stock units. 2. What is the effect on earnings in the year after the shares are granted to executives?

Solution and Explanation:

1. The following is used in order to calculate and ascertain the Computation of the total compensation cost pertaining to the restricted stock units:

32 million shares granted multiply with the $6 = $192 million fair value

2. Now, the  Effect on the earnings in the year after the shares are granted to the executives is calculated as follows:

The Profit will be decreased by ($192 divided by 4 year) $48 due to the allocation of Compensation expense.

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