Question: PHN Foods granted 18 million of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $5 per share on January 1, 2010, the grant date.
Required:
(1) What journal entry will PHN Foods prepare to record executive compensation regarding these shares at December 31, 2010 and December 31, 2011?
(2) When calculating diluted EPS at December 31, 2011, what will be the net increase in the denominator of the EPS fraction if the market price of the common shares averages $5 per share during 2011?