principle of accounting lecture 1 .pdf how and the allowance for doubtful account & depreciation and impairment 1. Accounts receivable are amounts owed by customers on account. Companies generally expect to collect these receivables within 30 to 60 days.

1. Corporation 32
Share-Based Compensation
Employee compensation plans frequently include share-based awards.
These may be out- right awards of shares, share options, or cash payments tied to the market
price of shares.
Sometimes only key executives participate in a share benefit plan.
Effective compensation programs do the following:
1. Base compensation on employee and company performance.
2. Motivate employees to high levels of performance.
3. Help retain executives and allow for recruitment of new talent.
4. Maximize the employee’s benefits.
5. Use performance criteria over which the employee has control.
Typically, an executive compensation plan is tied to performance in a strategy that uses
compensation to motivate its recipients
Accounting for Share-Based Compensation:
Two main accounting issues:
1. How to determine compensation expense.
2. Over what periods to allocate compensation expense.

2. Corporation 33
Share Award Plans
Under its restricted share award plan, Universal Communications grants five million of its $1
par ordinary shares to certain key executives at January 1, 2011. The shares are subject to
forfeiture if employment is terminated within four years. Shares have a current market price
of $12 per share
Required:-
1- Prepare journal entry at the date grant Jan. 1, 2011
2- Prepare journal entry to record compensation expense at the end of each year through
2014
3- prepare journal entry at the vesting date.
Solution
Required No. 1
January 1, 2011 No entry
Calculate the total compensation expense:
Required No. 2
The total compensation is to be allocated to expense over the four year service (vesting) period:
2011-2014=
60
4
= 15 million
December 31, 2011 Compensation expense
Paid-in-capital restricted shares
15
15
December 31, 2012 Compensation expense
Paid-in-capital restricted shares
15
15
December 31, 2013 Compensation expense
Paid-in-capital restricted shares
15
15
December 31, 2014 Compensation expense
Paid-in-capital restricted shares
15
15

3. Corporation 34
Required No. 3
Entry at the end of service period (Dec.31, 2014)
December 31, 2014 Paid-in-capital restricted shares
Ordinary shares (5 million share x
$1)
Paid in capital in excess of par
60
5
55
Share Option Plans
Assume that on Jan 1, 2019, the stockholders of Chen Company approve a plan that grants the
company’s five executives options to purchase 2,000 shares each of the company’s $1 par value
common stock. The fair value under option pricing model = $22
The company grants the options on Dec. 31, 2020. The executives may exercise the options at
any time within the next 10 years.
The option price per share is $60, and the market price of the stock at the date of grant is $70
per share.
Required:-
1- prepare journal entry at the date of grant at Jan. 1, 2019
2- prepare journal entry at the end of each period to record compensation expense for the
year 2019 and 2020.
3- Assume one employee exercise the option at June 1, 2023
4- Prepare journal entry to expire the option at Dec. 31, 2031
Solution
Required No. 1
At date of grant (January 1, 2020) No entry
Number of shares to be purchased = 2,000 shares x 5 employee = 10,000 shares
Total compensation expense = 10,000 shares x 22 = 220,000

4. Corporation 35
Required No. 2
Compensation expense per year =
220,000
2
= 110,000
December 31, 2020 Compensation expense
Paid-in-capital Stock options
110,000
110,000
December 31, 2021 Compensation expense
Paid-in-capital Stock options
110,000
110,000
Required No. 3
• Number of shares issued = 2,000 share x 1 employee = 2,000 shares
• % of the total compensation =
2,000
10,000
= 20%
• Paid in capital stock option to be exercised = 20% x 220,000 = 44,000
June 1,
2023
Cash (2,000 shares x $60)
Paid in capital stock option
Common stock (2,000 shares x $1)
Paid in capital in excess of par
120,000
44,000
2,000
162,000
Required No. 4:- When unexercised options expire
• % of the total compensation = 100% - 20% = 80%
• Paid in capital stock option expired = 80% x 220,000 = 176,000
Dec 31, 2031
(expiration date)
Paid in capital stock option
Paid in capital- expire stock option
176,000
176,000
Employee Share Purchase Plans
Say an employee buys shares (no par) under the plan for $850 rather than the current market
price of $1,000.
Cash
Compensation expense
Common stock
850
150
1000