On January 1, 2013, Orr Co. established a stock appreciation rights plan for its

Question

On January 1, 2013, Orr Co. established a stock appreciation rights plan for its executives. They could receive cash at any time during the next four years equal to the difference between the market price of the common stock and a pre established price of $15on 420,000 SARs. The market price is as follows: 12/31/13-$20; 12/31/14-$17; 12/31/15-$18; 12/31/16-$19. On December 31, 2015, 65,000 SARs are exercised, and the remaining SARs are exercised on December 31, 2016. Prepare a schedule that shows the amount of compensation expense for each of the four years starting with 2013. (If the compensation decreases from prior year enter the amount as a negative number in the table e.g. -25,000 or (25,000).)

Explanation / Answer

Schedule of Compensation Expense 420000 SARs Date Market Price Set Price Value of SARs Percent Accrued Accured to date Expense 12/31/2013 20 15 2100000 25% 525000 525000 -105000 12/31/2014 17 15 840000 50% 420000 -105000 525000 12/31/2015 18 15 1260000 75% 945000 475000 12/31/2016 19 15 1420000 100% 1420000 475000 (355000*4)

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