Question

In: Accounting

On January 1, 2019, Smith Inc. granted 6,500 Stock Appreciation Rights (SAR) to its executives, exercisable...

On January 1, 2019, Smith Inc. granted 6,500 Stock Appreciation Rights (SAR) to its executives, exercisable 2 years after grant date (unless employment is terminated) and prior to 8 years from grant date. The executives are to receive cash at exercise date for the excess of the market price over the pre-established base price of $25. The year-end fair values of each SAR were $3, 5.50, and $4.80 in 2019, 2020 and 2021 respectively. The executives exercise their SARs on 8/7/22 when the market price was $32 per share.

  1.     Prepare a properly labeled schedule to determine the amount of compensation expense for each of the four years.
  2.    Prepare the journal entries at 12/31/19, 12/31/20, 12/31/21, and 8/7/22.

Solutions

Expert Solution

Calcuation of Stock Appreciation Compensation Expense
Particulars 2019 2020 2021 2022
Number of Rights granted (A) 3500 3500 3500 3500
Fair Value of Rights (B) 3 5.5 4.8 7
(32-25)
Total Compensation Expense (A x B) 10500 19250 16800 24500
Compensation to be Recognised till Date 5250 19250 16800 24500
(10500/2)
Less : Compesation Expense recognised earlier 0 5250 19250 19250
Compensation Expense to be recognised for the Year 5250 14000 - 5250
Journal Entry
Date Particulars Debit Credit
31-Dec-19 Employee Compensation Expense A/c 5250
           To Employee Stock App. Rights Oustanding A/c 5250
(Being Employee compensation expense recognised)
Profit and Loss A/c 5250
          To Employee Compensation Expense A/c 5250
(Being Employee compensation expense transferred to Profit and loss A/c)
31-Dec-20 Employee Compensation Expense A/c 14000
           To Employee Stock App. Rights Oustanding A/c 14000
(Being Employee compensation expense recognised)
Profit and Loss A/c 14000
          To Employee Compensation Expense A/c 14000
(Being Employee compensation expense transferred to Profit and loss A/c)
31-Dec-21 NO Entry
07-Aug-22 Employee Stock App. Rights Outstanding A/c 24500
            To Cash A/c 24500
(Being Employee Stock App. Rights exercised)
Employee Compensation Expense A/c 5250
           To Employee Stock App. Rights Oustanding A/c 5250
(Being Employee compensation expense recognised)
Profit and Loss A/c 5250
          To Employee Compensation Expense A/c 5250
(Being Employee compensation expense transferred to Profit and loss A/c)

Upvote if you Like my Answer.


Related Solutions

On January 1, 2019, Smith Inc. granted 6,500 Stock Appreciation Rights (SAR) to its executives, exercisable...
On January 1, 2019, Smith Inc. granted 6,500 Stock Appreciation Rights (SAR) to its executives, exercisable 2 years after grant date (unless employment is terminated) and prior to 8 years from grant date. The executives are to receive cash at exercise date for the excess of the market price over the pre-established base price of $25. The year-end fair values of each SAR were $3, 5.50, and $4.80 in 2019, 2020 and 2021 respectively. The executives exercise their SARs on...
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...
4. On January 1, 2020, Orr Co. established a stock appreciation rights plan for its executives....
4. On January 1, 2020, Orr Co. established a stock appreciation rights plan for its executives. They could receive cash at any time during the next four years equal to the difference between the market price of the common stock and a preestablished price of $16 on 600,000 SARs. The market price is as follows: 12/31/20—$21; 12/31/21—$18; 12/31/22—$19; 12/31/23—$23. On December 31, 2022, 95,000 SARs are exercised, and the remaining SARs are exercised on December 31, 2023. (a) Prepare a...
Problem 2 On January 1, 2016, the Wiseguy Corporation granted 50,000 stock appreciation rights (SARs) to...
Problem 2 On January 1, 2016, the Wiseguy Corporation granted 50,000 stock appreciation rights (SARs) to the company's president, Henry Hill. Henry will be entitled to receive cash or common stock or some combination of cash and common stock for the difference between the quoted market price at the date of exercise and a $20 option price per SAR. It is assumed that Henry will elect to receive cash when he exercises his SARs. The service period is three years,...
On January 1, 2020, Sweet Corporation granted its president a share appreciation rights (SARs) package covering...
On January 1, 2020, Sweet Corporation granted its president a share appreciation rights (SARs) package covering employment over a three-year period. The package was based on SARs increases for 20,100 shares over the fair value on January 1, 2020 of $17 per common share. The SARs package to be paid in cash at the end of the third year (i.e., December 31, 2022). The fair values of the Sweet shares were as follows: December 31, 2020 $19/share December 31, 2021...
Rutter Inc. granted (see below for #) stock options to executives and employees on January 1,...
Rutter Inc. granted (see below for #) stock options to executives and employees on January 1, 2017. The options have a strike price is $10 per share and expire in 2019. The par value of the common stock is $ Using an option pricing model, the company calculates a fair value of $20 per share. The expected service period, or benefit period, is (see below) years. Prepare the journal entries for 2017 and 2018.   In 2019, (see below) % of...
On January 1, 2019, Golow Inc., granted 300,000 stock options to several of its officers for...
On January 1, 2019, Golow Inc., granted 300,000 stock options to several of its officers for the purchase of the Company’s $10 par value common stock at an option price of $30 PER SHARE. The options were exercisable beginning January 1, 2021 by grantees still working for the Company on that date. (There is a two year service period.) Any unexercised options will terminate on December 31, 2029. Assume that the fair value option pricing model determines total compensation expense...
Rutter Inc. granted 300,000 stock options to executives and employees on January 1, 2017. The options...
Rutter Inc. granted 300,000 stock options to executives and employees on January 1, 2017. The options have a strike price is $10 per share and expire in 2019. The par value of the common stock is $1. Using an option pricing model, the company calculates a fair value of $20 per share. The expected service period, or benefit period, is 3 years. a. Prepare the journal entries for 2017 and 2018. b. In 2019, 30% of the options are exercised...
As part of its stock-based compensation package, International Electronics (IE) granted 10 million stock appreciation rights...
As part of its stock-based compensation package, International Electronics (IE) granted 10 million stock appreciation rights (SARs) to top officers on January 1, 2021. At exercise, holders of the SARs are entitled to receive stock equal in value to the excess of the market price at exercise over the share price at the date of grant. The SARs cannot be exercised until the end of 2024 (vesting date) and expire at the end of 2026. The $1 par common shares...
As part of its stock-based compensation package, International Electronics granted 28 million stock appreciation rights (SARs)...
As part of its stock-based compensation package, International Electronics granted 28 million stock appreciation rights (SARs) to top officers on January 1, 2018. At exercise, holders of the SARs are entitled to receive stock equal in value to the excess of the market price at exercise over the share price at the date of grant. The SARs cannot be exercised until the end of 2021 (vesting date) and expire at the end of 2023. The $1 par common shares have...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT