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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 Holden Company has a share appreciation rights plan for its key executives. This SAR plan gives each qualifying executive the right to receive cash, stock, or a combination of both equal to the excess of the quoted market price over the option price of the company’s $10 par common stock on the date of exercise. The key characteristics and requirements of this SAR plan are as follows:

  • Option price: Market price on date of grant
  • Service period: 4 years
  • Exercise limit: Within 6 years after the service period has expired

On January 1, 2019, Sarah Mendelson was granted SAR to 10,000 shares of the company’s common stock under the requirements of the SAR plan. She is expected to complete the service period and receive cash on the date of exercise. On December 31, 2019, Mendelson exercised her rights to receive $27,000 cash and the remainder in common stock. The fair value per SAR was as follows: 12/31/19, $4.00; 12/31/20. $4.10; 12/31/21, $3.80; 12/31/22. $5.50; and 12/31/23, $6,00, The quoted market price per share of common stock was $16 on January 1, 2019, and $22 on December 31, 2023.

Required:

  1. 1. Prepare a schedule to compute the compensation expense related to this SAR plan for 2019 through 2023.
  2. 2. Prepare the  journal entries related to the SAR plan on December 31, 2019, through December 31, 2023.

1.

To determine

Prepare the schedule to compute the Compensation expense related to the given SAR plan for 2019 to 2023.

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...

2.

To determine

Prepare the journal entries related to the given SAR plan as on December 31, 2019 to December 31, 2023.

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