mirka.j
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Joined: 19 Dec 2010
Location: United States
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Posts: 7
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| Posted: 19 Feb 2011 at 21:15 | IP Logged
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I am just not getting it. It is from Wiley's book:
On January 2009, Fay Corpor. established and ESOP (Employee Stock Ownership Plan). Selected transactions relating to the ESOP during 2009 were as follows:
- On April1,2009, Fay contributed $30,000 cash and 3,000 shares of its $10 par common stock to the ESOP. On this date the market price of the stock was $18 a share.
- On October 1, 2009, the ESOP borrowed $100,000 from Union National Bank and acquired 5,000 shares of Fay's common stock in the open market at $17 a share. The note is for one year, bears interest at 10%, and is guaranteed by Fay.
- On December 15,2009, the ESOP distributed 6,000 shares of Fay common stock to employees of Fay in accordinance with the plan formula.
a) In its 2009 income statement, how much should Fay report as compensation expense relating to the ESOP? 184 or 120 or 84 or 60ths.
B) In Fay's December 31,2009 balance sheet, how much should be reported as a reduction of shareholders' equity and as an endorsed note payable in respect of the ESOP?
Solution: a) $84,000 ($30,000 cash and common stock with a FV of $54,000 =3,000x18).
b) 100,000 reduction of shareholders' equity and 100,000 as endorsed note payable.
MY QUESTION: CAN ANYBODY PLEASE EXPLAIN, WHY THEY DID NOT COUNT WITH THOSE 5,000 SHARES ACQUIRED IN OCTOBER AS COMPENSATION EXPENSE? IS IT BECAUSE MONEY WERE BORROWED?
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Topic: Employee Stock Ownership Plan - help pls
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