On December 31, 20x0, Flessel Company issues 120,000 stock-appreciation rights to its officers entitling them to...

On December 31, 20x0, Flessel Company issues 120,000 stock-appreciation rights to its officers entitling them to receive cash for the difference between the market price of its stock and a pre-established price of $10. The market value of the company’s stock is $14 per share on December 31, 20x1; $11 on December 31, 20x2; $21 on December 31, 20x3; and $19 on December 31, 20x4. Although the exercise period is 7 years, the estimated service period is 4 years.

Instructions:

(a) Prepare a schedule that shows the amount of compensation expense allocable to each year affected by the stock-appreciation rights plan.

(b) Prepare the entry at December 31, 20x4, to record compensation expense, if any, in 20x4.

(c) Prepare the entry on December 31, 20x4, assuming that all 120,000 SARs are exercised.

Expert Solution

Stock Appreciation Rights(SARs)
Requirement a
	Schedule showing the amount of compensation expense allocable to each year
	Details	20X1	20X2	20X3	20X4
	Total No. of rights	120000	120000	120000	120000
	pre-established price	4	1	11	9
	Total value	480000	120000	1320000	1080000
	Total cumulative costs of SAR	120000	60000	990000	1080000
	Less : Amount already recognized	0	120000	60000	990000
	Amount of compensaion expense	120000	-60000	930000	90000


						Amount in $
Requirement b		Date	General Journal			Debit	Credit
		December 31, 20X4	Employee's compensation expense					90000
				Provision for SARs Liabilities					90000
			To record the compensation expense in respect of SARs

Requirement c		December 31, 20X4	Provision for SARs Liabilities					1080000
				cash			1080000
			To record excise of SARs and its settlement in cash

ekkarill92 answered 1 year ago

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