Question

Futuristic Products Company established a stock appreciation rights (SARs) program which entitles its new president Jill Castleberry to receive cash for the difference between the market price of the stock and a preestablished price of $30 a share on 20,000 shares. The date of grant is December 31 2014 and requires the president remain in her position during 2015,2016 and 2017. As of January 1, 2018, the SARs are exercisable for 5 years before they lapse. Jill exercises the SARs on January 2, 2020. The company has adopted the fair value method of expensing its SARs to employees and it has run the Black-Scholes pricing model for them. The company controller has also updated the pricing model through the date that the SARs were exercised. The "total" fair value (i.e., the preestablished price has not been deducted yet) for all SARs per the original run of the model (and the updated runs) are shown below Date Estimated Total Fair Value of SARs /per share 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 21/31/2019 1/2/2020 $30 36 39 45 36 48 48 A. Prepare a Schedule of Compensation Expense pertaining to the SARs for the period 2015 2020. B. Prepare the journal entry for compensation expense in 2014, 2018, and 2019.

Answer 1

SARs are reported as debt. SARs are Cost Associated with SARs plan not settled until expired or payout, So it is liabilities for Company.
Number of Period is 5 year for exercised. It means Expense Divided over 5 years.
Date	Estimated SAR Value	SAR Plan Value (Estimated SAR Value * 20000)	Number of Year	Compensation Expense till the date (SAR Plan Value * Number of Year /5)	Compensation Expense till Previous year	Compensation Expense Recognized in the year (Compensation Expense till the date - Compensation Expense till Previous year)
12/31/2014	30	600,000	-	-	-	-
12/31/2015	36	720,000	1	144,000	-	144,000
12/31/2016	39	780,000	2	312,000	144,000	168,000
12/31/2017	45	900,000	3	540,000	312,000	228,000
12/31/2018	36	720,000	4	576,000	540,000	36,000
12/31/2019	48	960,000	5	960,000	576,000	384,000
Total Compensation expense over Five years						960,000

Journal Entries
Date	general Journal	Debit	Credit
12/31/2014	No entry
12/31/2018	Compensation expense	36,000
	Liability - stock appreciation rights		36,000
	(To record Compensation expense For SARs Plan.)
12/31/2019	Compensation expense	384,000
	Liability - stock appreciation rights		384,000
	(To record Compensation expense For SARs Plan.)
Additional information
When Amount paid	Liability - stock appreciation rights (20000*48)	960000
1/2/2020	Cash		960000
	(To record SARs Plan exercised and amount paid.)