An entity grants 100 cash share appreciation rights (SARs) to each of its 500 employees, on conditions that the employees remain in its employ for the next three years. During Year 1, 35 employees leave. The entity estimates that a further 60 will leave during Years 2 and 3. During Year 2, 40 employees leave and the entity estimates that a further 25 will leave during Year 3. During Year 3, 22 employees leave. At the end of Year 3, 150 employees exercise their SARs, another 140 exercise their SARs at the end of Year 4 and the remaining 113 employees exercise their SARs at the end of Year 5. The entity estimates the fair value of the SARs at the end of each year in which a liability exists as shown below. At the end of Year 3, all SARs held by the remaining employees vest. The intrinsic values of the SARs at the date of exercise, which equal the cash paid out) at the end of Years 3, 4 and 5 are also shown below. Year Fair Value Intrinsic Value 1 P 14.40 2 15.50 3 17.20 P 16.00 4 20.40 19.00 5 24.00 1. What is the compensation expense for Year 3? 2. What amount should be reported in the Year 4 statement of financial position as liability under the share appreciation rights? 3. What is the cumulative compensation expense recognized after all the SARs have been exercised at the end of Year 5?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter15: Shareholders’ Equity: Capital Contributions And Distributions

Section: Chapter Questions

Problem 29P

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PROBLEM 4 An entity grants 100 cash share appreciation rights (SARs) to each of its 500 employees, on conditions that the employees remain in its employ for the next three years. During Year 1, 35 employees leave. The entity estimates that a further 60 will leave during Years 2 and 3. During Year 2, 40 employees leave and the entity estimates that a further 25 will leave during Year 3. During Year 3, 22 employees leave. At the end of Year 3, 150 employees exercise their SARs, another 140 exercise their SARs at the end of Year 4 and the remaining 113 employees exercise their SARs at the end of Year 5. The entity estimates the fair value of the SARs at the end of each year in which a liability exists as shown below. At the end of Year 3, all SARs held by the remaining employees vest. The intrinsic values of the SARs at the date of exercise, which equal the cash paid out) at the end of Years 3, 4 and 5 are also shown below. Year Fair Value Intrinsic Value 1 P 14.40 2 15.50 3 17.20 P 16.00 4 20.40 19.00 5 24.00 1. What is the compensation expense for Year 3? 2. What amount should be reported in the Year 4 statement of financial position as liability under the share appreciation rights? 3. What is the cumulative compensation expense recognized after all the SARs have been exercised at the end of Year 5?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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