A company’s board of directors has granted 2,000 restricted stock units (RSUs) to executives when the market price of the stock was $10 per share. The RSUs vest in 4 years. At the end of year 1, the stock price was $12 per share and expected forfeitures were 10%. At the end of year 2, the stock price was $13 per share and expected forfeitures were 15%.

1. Assume that the RSUs can only be redeemed by the executives for shares of stock. What amount of compensation expense will the company record in years 1 and 2?
2. Assume that the executives can choose between shares of stock and cash for the market value of the stock. What amount of compensation expense will the company record in years 1 and 2?
3. For future review: could you answer the same questions if instead the company had granted stock options with an exercise price of $10 and a fair value of $4?

Answer rating: 100% (QA)

Assume that the RSUs can only be redeemed by the executives for shares of stock What amount of compensation expense will the company record in years 1 ... View the full answer