A company grants Stock Appreciation Rights (SARs) that are settled in cash. On Jan 1, Year 1, 1,000 SARs are granted vesting over 2 years. - Dec 31, Year 1 FV of SAR: $10 - Dec 31, Year 2 FV of SAR: $12 What is the compensation expense for Year 2?

Answer options:

$12,000

$6,000

$7,000

$5,000

How to approach this question

Liability awards: 1. Calculate Target Liability at year-end (Total FV * % Vested). 2. Expense = Target Liability - Liability already booked.

Full Answer

C.$7,000✓ Correct

1. Year 1 Expense: 1,000 SARs x $10 FV x 50% vested = $5,000 liability. 2. Year 2 Target Liability: 1,000 SARs x $12 FV x 100% vested = $12,000. 3. Year 2 Expense: $12,000 (Target) - $5,000 (Already recognized) = $7,000.

Common mistakes

Forgetting to subtract prior year expense; ignoring vesting percentage.

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A company grants Stock Appreciation Rights (SARs) that are settled in cash. On Jan 1, Year 1, 1,000 SARs are granted vesting over 2 years. <br/>- Dec 31, Year 1 FV of SAR: $10<br/>- Dec 31, Year 2 FV of SAR: $12<br/><br/>What is the compensation expense for Year 2?

How to approach this question

Full Answer

Common mistakes

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