In: Accounting
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.
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) |
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