Exercise 1629 On December 31 2013 Blue Company issues 143000

Exercise 16-29 On December 31, 2013, Blue Company issues 143,000 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 $9. The fair value of the SARs is estimated to be $5 per SAR on December 31, 2014; $2 on December 31, 2015; $9 on December 31, 2016; and $8 on December 31, 2017. 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).) Percentage Accrued Compensation Accrued to Date Expense 2014 Expense 2015 Expensee 2016 Expense 2017 Date Fair Value Cumulative Compensation Recognizable 12/31/14 12/31/15 12/31/16 12/31/17

Solution

(a) Schedule of Compensation Expense Stock Appreciation Rights (143,000) Date Fair Cumulative Compensation Recognizable Percentage Accrued Compensation Expense 2011 Expense 2012 Expense 2013 Expense 2014 Value Accrued to Date 12/31/2014 $5 $715,000 25% $178,750 $178,750 -35,750 ($35,750) 12/31/2015 2 $286,000 50% 143,000 822,250 $822,250 12/31/2016 9 $1,287,000 75% 965,250 178,750 $178,750 12/31/2017 8 $1,144,000 100% $1,144,000 (b) Compensation Expense 178,250 Liability Under Stock Appreciation Plan 178,250 (c) Liability Under Stock Appreciation Plan 1,144,000 Cash (143,000 X $8) 1,144,000