Derrick Company establishes a stock-appreciation rights program that entitles it
ID: 2634653 • Letter: D
Question
Derrick Company establishes a stock-appreciation rights program that entitles its new president Dan Scott to receive cash for the difference between the market price of the stock and pre-established price of $30 on December 31, 2009 on 40,000 SARs. The date of grant is December 31, 2008 and the required employment period is 4 years. President Scott exercises all of the SARs in 2014. The fair value of the SARs is estimated to be $6 per SAR on December 31, 2009; $9 on December 31, 2010; $15 on December 31, 2011; $8 on December 31, 2012; and $18 on December 31, 2013.
Explanation / Answer
(a) Schedule of Compensation Expense Stock Appreciation Rights
Date
Fair
Value
Cumulative Compensation Recognizable
Percentage Accrued
Compensation
Accrued
to Date
Expense 2009
Expense 2010
Expense 2011
Expense 2012
Expense 2013
12/31/09
$ 6
$240,000
25%
$ 60,000
$60,000
120,000
$120,000
12/31/10
9
360,000
50%
180,000
270,000
$270,000
12/31/11
15
600,000
75%
450,000
(130,000)
$(130,000)
12/31/12
8
320,000
100%
320,000
400,000
$400,000
12/31/13
18
720,000
$720,000
(b)
2009
Compensation Expense 60,000
Liability Under Stock Appreciation Plan 60,000
2012
Liability Under Stock Appreciation Plan 130,000
Compensation Expense 130,000
2013
Compensation Expense 400,000
Liability Under Stock Appreciation Plan 400,000
Date
Fair
Value
Cumulative Compensation Recognizable
Percentage Accrued
Compensation
Accrued
to Date
Expense 2009
Expense 2010
Expense 2011
Expense 2012
Expense 2013
12/31/09
$ 6
$240,000
25%
$ 60,000
$60,000
120,000
$120,000
12/31/10
9
360,000
50%
180,000
270,000
$270,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.