What are the accounting entries used for Restricted Stock Units?
Anonymous (VP Finance/Corp Controller)
| Oct 25, 2010What are the accounting entries (the debits, credits and accounts) used for grant accounting of Restricted Stock Units? An example would be great.
Answers
Company: Frank, Rimerman + Co. LLP
Accounting for restricted stock units (RSU’s) is very similar to accounting for stock options. The major difference is that valuation is generally much simpler for RSU’s, since for non-dividend paying stocks, the RSU is worth the fair value of the underlying stock—no complex option pricing model necessary.
RSU’s granted to employees are valued at the date of grant and recognized in compensation expense over the service period, which is generally the vesting period.
So let’s take a simple example: 1,000 RSU’s granted on the first day of the accounting period, vesting in four equal, annual installments. Let’s assume the stock does not pay a dividend and has a fair value of $1.00 per share. By the end of the first accounting period, you should have debited compensation expense for $250, credited common stock for the par value of 250 shares and credited APIC for the difference. This same entry would be made each year. The amount of the entry should also be reduced for expected forfeitures (RSU’s not expected to vest) and periodically trued-up for actual forfeitures.
I hope this is helpful—if you have some follow-up questions, fire away.
Company: Stock & Option Solutions
Exactly right, Brian. And to complicate matters just a bit... you should also be reducing the expense you accrue by an estimated forfeiture rate and truing up to actual forfeitures at the time of, or even before, the vesting occurs.