Share Appreciation Rights. Holden Company has a share appreciation rights plan f

Question

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, stick, 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, 2015, Sarah Mendelson was grated SARs 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 follows: 12/31/15, $4.00; 12/31/16, $4.10; 12/31/17, $3.80; 12/31/18, $5.50; and 12/31/19, $6.00. The quoted market price per share of common stock was $16 on January 1, 2015, and $22 on December 31, 2019. Required: 1. Prepare a schedule to compute the compensation expense related to this SAR plan for 2015 through 2019. 2. Prepare the journal entries related to the SAR plan on December 31, 2015, through December 31, 2019.

Explanation / Answer

Schedule of Compensation Expense

Year

Journal Entries

Note: At the Grant Date Toal Liability under SARs is $60,000 out of which Cash is paid of $27,000 so Balance $33,000 is paid in Shares and as on Grant date the Market Value is $22 so 1,500 ($33,000/22) Shares are issued as compensation.

Year

Cumulative Compensation Recognisable Percentage Accrued based on Service Period Compensation Expense to be recognised Compensation Expense Already Recognised Compensation Expense to be recognised in The Current year Dec-31, 2015 10,000*4=$40,000 25% $10,000 0 $10,000 Dec-31, 2016 10,000*$4.10=$41,000 50% $20,500 $10,000 $10,500 Dec-31, 2017 10,000*$3.80=$38,000 75% $28,500 $20,500 $8,000 Dec-31, 2018 10,000*5.50=$55,000 100% $55,000 $28,500 $26,500 Dec-31, 2019 10,000*6=$60,000 100% $60,000 $55,000 $5000

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.