Question 5 On January 1, 2013, Orr Co. established a stock appreciation rights p
ID: 2450928 • Letter: Q
Question
Question 5
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 preestablished price of $17on 440,000 SARs. The market price is as follows: 12/31/13-$23; 12/31/14-$19; 12/31/15-$20; 12/31/16-$21. On December 31, 2015, 60,000 SARs are exercised, and the remaining SARs are exercised on December 31, 2016.
Date
Market
Price
Set
Price
Value
of SARs
Percent
Accrued
Accrued
to Date
Expense
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Date
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Date
Account Titles and Explanation
Debit
Credit
Question 5
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 preestablished price of $17on 440,000 SARs. The market price is as follows: 12/31/13-$23; 12/31/14-$19; 12/31/15-$20; 12/31/16-$21. On December 31, 2015, 60,000 SARs are exercised, and the remaining SARs are exercised on December 31, 2016.
Explanation / Answer
Schedule of Compensation Expense Date Market Set Value Percent Accrued Expense Price Price of SARs Accrued to Date 12/31/2013 23 17 6 35% $ 2,640,000.00 12/31/2014 19 17 2 12% $ 880,000.00 12/31/2015 20 17 3 18% $ 1,320,000.00 $ 180,000.00 12/31/2016 21 17 4 24% $ 1,520,000.00 $ 1,520,000.00 Value of SAR = Market price - Set price Percent Accrued =Unit Value of SAR/Unit Set price Accrued to date = no of SAR outstanding x Unit Value of SAR. in 2015, 60000 SAR excercised and remaining SAR was 380,000 So SAR Accrued in 2016 = 380,000 x 4 = 152,000 and same has been excercised Journal Entries Date Account Title and explanation Debit Credit 31-Dec-14 Accrued SAR Compensation 1760000 Income Summary 1760000 (Compensation provission has been reduced to current provision of 880,000) Journal Entries Date Account Title and explanation Debit Credit 31-Dec-16 SAR Compensation Expenses $ 380,000.00 Accrued SAR Compensation $ 380,000.00 (Compensation Accrued 1,520,000 and Existing Accrued SAR Compensation is 1,320,000-180,000=1,140,000. Balance 1,520,000-1,140,000=380,000 has been created.) 31-Dec-16 Accrued SAR Compensation $ 1,520,000.00 Cash $ 1,520,000.00 (Compensation paid)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.