Problem
Olympia Company establishes a stock appreciation rights program that entitles its new CEO to receive cash for the difference between the market price of the stock and a pre-established price of $20 (also market price) on December 31, 2018, on 50,000 SARs. The date of grant is December 31, 2015, and the required employment (service) period is 3 years. The CEO exercises all of the SARs on December 31, 2018. The market value of the stock fluctuates as follows: $19 per SARs on December 31, 2016; $23 on December 31, 2017; and $25 on December 31, 2018.
Instructions
(a) Prepare a 3-year (2016-2018) schedule of compensation expense pertaining to the 50,000 SARs granted the CEO.
(b) Prepare the journal entry for compensation expense in 2016, 2017, and 2018 relative to the 50,000 SARs.