Only unvested awards/units are included because vested are already considered issued and outstanding. Still use treasury stock method, but now the proceeds portion is replaced with the unexpensed compensation.

ABC Company issues 2,000 shares of restricted stock to their CEO when the stock was trading for $15. Vesting for the CEO occurs after 5 years of service with the company and the par value of the stock is $1. How many shares would be added to diluted eps at the end of the first year assuming the market value of the stock is still $15?

Total compensation = 2,000 shares x $15 = $30,000

Expense per year = $30,000 / 5 years = $6,000/yr

Unexpensed compensation after year 1 = $24,000

Proceeds (Unexpensed compensation) $24,000

T/S Purchased ($24,000/$15) 1600

Total Shares Needed 2000

Additional Shares Needed 400

After 2^nd Year:

Unexpensed Compensation is now $18,000

Assume market price is still $15

Proceeds (Unexpensed compensation) $18,000

T/S Purchased ($18,000/$15) 1200

Total Shares Needed 2000

Additional Shares Needed 800