On December 31, 2010, Beckford Company issues 128,000 stock-appreciation rights

Question

On December 31, 2010, Beckford Company issues 128,000 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 S9. The fair value of the SARs is estimated to be S5 per SAR on December 31, 2011; $2 on December 31, 2012; $10 on December 31, 2013; and S8 on December 31, 2014. The service period is 4 years, and the exercise period is 7 years. Prepare a schedule that shows the amount of compensation expense allocable to each year affected by the stock-appreciation rights plan. (If the compensation decreases from prior year enter the amount as a negative number in the table e.g. -25,000 or (25,000).) Prepare the entry at December 31, 2014, to record compensation expense, if any, in 2014. Prepare the entry on December 31, 2014, assuming that all 128,000 SARs are exercised.

Explanation / Answer

Answer:a)

Answer:b)

Compensation Expense A/C Dr. $64,000

     To Stock-Appreciation Plan A/C    $64,000

Answer:c) Stock-Appreciation Plan A/C Dr. $1,024,000

                    To Cash A/C    $1,024,000

12.31.2010 SAR Pre-establish price Service period(years) Exercise period (Years) 128000 9 4 7 Fair value 128K SAR* Fair value cummulative comp recog Service period 4 years % Accrued Total Balance Year expense 12.31.2011 5 640000 25% 160000 - 2011 12.31.2012 2 256000 50% 128000 -32000 2012 12.31.2013 10 1280000 75% 960000 832000 2013 12.31.2014 8 1024000 100% 1024000 64000 2014

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