ACC 423 Exercise 16-29

Exercise 16-29
On December 31, 2010, Beckford Company issues 150,000 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 $10. The fair value of the SARs is estimated to be $4 per SAR on
December 31, 2011; $1 on December 31, 2012; $10 on December 31, 2013; and $9 on December
31, 2014. The service period is 4 years, and the exercise period is 7 years.


Instructions
(a) Prepare a schedule that shows the amount of compensation expense allocable to each
year affected by the stock-appreciation rights plan.
(b) Prepare the entry at December 31, 2014, to record compensation expense, if any, in 2014.

(c) Prepare the entry on December 31, 2014, assuming that all 150,000 SARs are exercised.



Solution
(a) Schedule of Compensation Expense Stock Appreciation Rights (150,000)


Cumulative Compensatio
Fair Compensatio Percentage n Expense Expens Expense Ex
Date Value n Accrued Accrued to 2011 e 2013 2
Recognizable Date 2012
12/31/11 $4 $600,000 25% $150,000 $150,000
(75,000) $(75,00
0)
12/31/1 $1 150,000 50% 75,000
2
1,050,000 $1,050,000
12/31/1 $10 1,500,000 75% 1,125,000
3
225,000 $22
12/31/1 $9 1,350,000 100% $1,350,000
4


(b) Compensation Expense 225,000
Liability under Stock Appreciation Plan 225,000