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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Share Appreciation Rights On January 1, 2019, as a form of executive compensation, Wadlin Corporation grants share appreciation rights to Robert Brandt. These rights entitle Brandt to receive cash equal to the excess of the quoted market price over a $20 option price for 4,000 shares of the company’s common stock on the exercise date. The service period is 3 years (which Brandt is expected to complete), and the rights must be exercised within 5 years. Brandt exercises his rights on December 31, 2022. The fair value per SAR was as follows: 12/31/19, $3.00; 12/31/20, $4.20; 12/31/21, $4.00; and 12/31/22, $5.00. The quoted market price per share of common stock was $25 on December 31, 2022.

Required:

  1. 1. Prepare a schedule to compute the compensation expense related to this SAR plan for 2019 through 2022.
  2. 2. Prepare the December 31, 2022, journal entry related to this SAR plan.

1.

To determine

Prepare a schedule of Corporation W’s compensation computation for its compensatory share option plan for 2019 through 2022.

Explanation

Share Appreciation Rights (SARs): The awards which offer the employees the right to receive either cash or shares or both for the appreciation amount by which the market value of share on the exercise date exceeds the pre-determined exercise price are referred to as SARs.

Prepare a schedule of Corporation W’s compensation computation for its compensatory share option plan for 2022 through 2022:

Particulars31-12-201931-12-202031-12-202131-12-2022
Fair value per SAR $3.00 $4.20 $4.00 $5.00
Number of shares entitled under the rightx4,000 x4,000 x4,000 x4,000
Estimated total compensation cost $12,000 $16,800 $16,000 S20,000
Fraction of service accruedx1/3 yearsx2/3 yearsx3/3 yearsx3/3 years
Total compensation expense to date 4,000 11,200 16,000 20,000
Previously recognized compensation expense 0(4,000)(11,200)(16,000)
Compensation expense $4,000$7,200$4,800$4,000

Table (1)

Working Note 1: Compute the compensation expense as on 31/12/2020.

Compensationexpense} = {Total compensation expense to date as on 31/12/2020Compensation expense as on 31/12/2019}= $11,200$4,000=$7,200

Working Note 2: Compute the compensation expense as on 31/12/2021

2.

To determine

Prepare the journal entry for the SAR plan on the exercise date, 31/12/2022.

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