Acorn Limited is a listed company based in Vermont. On January 1, 2018, the company granted 1,000 share units to its CFO. Each share unit has a contractual service period of three years and a vesting condition based on the details below.

At the end of 2020, each share unit is convertible into 100 common shares of Acorn Limited if both of the following criteria are met:

2018-2020 Accumulated company net income is greater than $5 million.

2018-2020 Stock price increase is greater than 25%.

On the grant date, the company's common shares had a fair value of $6 per share and the company was expected to meet both of the criteria above.

During 2018 and 2019, the company was expected to meet both of the criteria above. However, during 2020 the company's stock price decreased and the company did not meet the stock price increase criteria at the end of the year.

The company's accountant has asked for your help to check the compensation costs recorded for these share units during 2018-2019 and record the appropriate journal entry at the end of 2020.

Ignore the effects of taxes.

1.The first part is the Question. In this section, identify the accounting problem.

2.The second part is the Solution. In this section, communicate the proposed solution to the accounting problem identified in section one. Explain and lay out all of the steps involved in to the solution. This will usually involve calculations and journal entries. Be sure to adequately answer the question from part one, including calculations and working. Use in text citations where necessary.

3.The third part is the Authoritative Citation(s). In this section, list the titles of the citation(s) from the professional accounting literature based the solution.

4.In addition to the sections described above, cut and paste the full details of the authoritative citation(s) at the end.