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Stock Appreciation Rights

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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 a pre-established price of $30 (also market price) on December 31, 2008, on 40,000 SARs. The date of grand is December 31, 2008, and the required employment (service) 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.

Instructions:
(a) Prepare a 5-year (2009-2013) schedule of compensation expense pertaining to the 40,000 SARs granted to president Scott.
(b) Prepare the journal entry for compensation expense in 2009, 2012, and 2013 to the 40,000 SAR.

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Solution Summary

This solution helps prepare a compensation schedule and journal entries for compensation expenses.

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(a) The schedule is
Cumulative Compensation
Fair Compensation Percentage Accrued Expense Expense Expense Expense Expense
Date Value Recognized Accrued to date 2009 2010 2011 2012 2013
12/31/2009 6 240,000 25% 60,000 60,000 ...

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