Question

ch. 16.1 #2
On December 31, 2016, Kingbird Company issues 161,000 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 $11. The fair value of the SARS is estimated to be $5 per SAR on December 31, 2017; $2 on December 31, 2018; $11 on December 31, 2019; and $10 on December 31, 2020. 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).) Compensation Accrued to Date Percentage Accrued Date Fair Value Cumulative Compensation Recognizable 12/31/17 $ $ 12/31/18 12/31/19 12/31/20

Answer 1

Schedule to show the compensation expense allocable to each year affected by Stock Appreciation rights Plan

Date	Fair Value	Cumulative Compensation Recognisable (161,000 * Fair value)	% Accrued	Total	Balance	Expense Year
12/31/2017	$5	$805,000	25%	$201,250	-	2017
12/31/2018	$2	$322,000	50%	$161,000	($40,250)	2018
12/31/2019	$11	$1,771,000	75%	$1,328,250	$1,167,250	2019
12/31/2020	$10	$1,610,000	100%	$1,610,000	$281,750	2020

Date	Accounts title and explanation	Debit	Credit
Dec 31,2020	Compensation Expense	$281,750
	Stock-Appreciation Plan		$281,750
	(To record the Compensation Expense)

Date	Accounts title and explanation	Debit	Credit
Dec 31,2020	Stock-Appreciation Plan	$1,610,000
	Cash		$1,610,000
	(To record the realisation of cash exercised)