Question
In: Accounting
On January 1, 2020, Aryan Corporation granted its president a share appreciation rights a share appreciation...
On January 1, 2020, Aryan Corporation granted its president a
share appreciation rights a share appreciation rights (sar) package
covering employment over a three-year period. The package was based
on sar increases for 26,320 shares over the fair value on January
1, 2020 of $13 per common share. The sar package to be paid in cash
at the end of the third year (i.e., December 31, 2022).
The fair values of the Aryan shares were as follows:
| December 31, 2020 | $15/share | |
| December 31, 2021 | $18/share | |
| December 31, 2022 | $16/share |
Prepare the journal entries to record the Share Appreciation Rights
(sar) package, and the payment on December 31, 2022 assuming that
Aryan follows ASPE.
Show all the calculations, dates and descriptions for the entries.
There should be only four entries in total which includes the entry for recording the sar package, entry for payment, entry for recording negative compensation expense, entry for removing sar liability. NOTE: each entry should have only two accounts debit and credit, it should not be a contra entry.
Read the question carefully and complete all the requirements.
Solutions
Expert Solution
Schedule to compute the compensation expense:
| Particulars | 31st December 2020 | 31st December 2021 | 31st December 2022 |
| Fair Value - a | 15 | 18 | 16 |
| No. Shares Entitled under the right - b | 26320 | 26320 | 26320 |
| Estimated total compensation Cost (axb) - c | $ 3,94,800.00 | $ 4,73,760.00 | $ 4,21,120.00 |
| Fraction of Service Accrued - d | 1/3 Years | 2/3 Years | 3/3 Years |
| Total Compensation expense to date - (cxd) | $ 1,31,600.00 | $ 3,15,840.00 | $ 4,21,120.00 |
| Previously Recognised Compensation expense | $ 0 | $ -1,31,600.00 | $ -3,15,840.00 |
| Compensation Expense | $ 1,31,600.00 | $ 1,84,240.00 | $ 1,05,280.00 |
JOURNAL ENTRIES
| Date | Particulars | Debit | Credit |
| 31st Dec 2020 | Compensation Expense A/c | $ 1,31,600.00 | |
| To Provision for SAR - Liability A/c | $ 1,31,600.00 | ||
| (To record the compensation Expense) | |||
| 31st Dec 2021 | Compensation Expense A/c | $ 1,84,240.00 | |
| To Provision for SAR Liability A/c | $ 1,84,240.00 | ||
| (To record the compensation Expense) | |||
| 31st Dec 2022 | Compensation Expense A/c | $ 1,05,280.00 | |
| To Provision for SAR - Liability A/c | $ 1,05,280.00 | ||
| (To record the compensation Expense) | |||
| 31st Dec 2022 | Provision for SAR - Liability A/c | $ 4,21,120.00 | |
| To Cash A/c | $ 4,21,120.00 | ||
| (To record the cash payment) | |||
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