If restricted stock is forfeited because an employee leaves the company, the appropriate accounting procedure is to:
A)Reverse related entries made previously.
B)Do nothing.
C)Prepare correcting entries.
D)Record an income item.

Question

Quizplus · Accepted Answer

When restricted stock is forfeited due to an employee leaving the company, the previously recorded entries for the granting of the stock must be reversed to reflect that the stock was never actually earned or acquired by the employee. This involves debiting the stock options or equity compensation account and crediting the deferred compensation liability account. Therefore, the appropriate accounting procedure is to reverse related entries made previously.

If Restricted Stock Is Forfeited Because an Employee Leaves the Company