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What are the accounting entries used for Restricted Stock Units?

Accounting For Restricted Stock UnitsWhat are the accounting entries (the debits, credits and accounts) used for grant accounting of Restricted Stock Units? An example would be great.

Answers

Brian Kreischer
Title: Assurance and Advisory Partner
Company: Frank, Rimerman + Co. LLP
(Assurance and Advisory Partner, 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.

Vivian Taylor
Title: Accounting manager
Company: self employed
(Accounting manager, self employed) |

Hi Brian or anyone who may help...I am trying to see what accounting treatments are needed when the restricted stock units are vested... say 100 shares granted at $35.00.. so my original accounting is Dr Expense $3,500 Cr APIC $3,500... the dividends are 25 shares and the total vested shares is 1,250 shares at $40.00.. and the net shares to be issued is 94 shares. the diff is the tax withholding...
should I do the following?? or can someone help me?
Dr APIC $3,500
Cr C/S $0.1 par value $9.4
Cr APIC $3,490.6
if treasury shares used
Dr APIC $3,500
Cr Treasury shares @$39.0 $3,900
Dr APIC $400???

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

You may also want to take a look at this free

"Sample Restricted Stock Purchase Agreement:

https://www.proformative.com/resources/sample-stock-purchase-agreement

Also, take a look at this free webinar with CPE here at Proformative titled,

"Equity Compensation Plans: Benchmarking Operational and Reporting Performance"
https://www.proformative.com/events/equity-compensation-plans-benchmarking-operational-reporting-performance

I hope it helps!

Best... Sarah

Elizabeth Dodge
Title: VP
Company: Stock & Option Solutions
(VP, 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.

Vivian Taylor
Title: Accounting manager
Company: self employed
(Accounting manager, self employed) |

If 10% of the 125 shares get deferred, i.e. 112.5 shares issued and 12.5 shares deferred, what should I do on the deferral of 12.5 shares? say the market value is $35 (debits, credits and accounts)
Thanks

Harry Howe
Title: Professor
Company: SUNY Geneseo
(Professor, SUNY Geneseo) |

I haven't found any authoritative answer on this, but one approach that occurs to me would be to create a Dr. balance XEQ account called "restrictions" and debit that for the value of the restricted shares. When they vest, the credit to this account is offset by recognition of the compensation expense. This way the issuance of the shares is recognized, but there is no overall impact on contributed capital until the employment condition is satisfied.

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