Chiu Limited established a stock appreciation rights program that entitled its new president, Brandon Sutton, to receive cash for the difference between the shares’ market price and a pre-established price of $32 (also market price) on December 31, 2011, on 50,000 SARs. The date of grant is December 31, 2011, and the required employment (service) period is four years. The president exercised all of the SARs in 2011. The shares’ market value fluctuated as follows: December 31, 2012, $36; December 31, 2013, $39; December 31, 2014, $45; December 31, 2015, $36; December 31, 2016, $48. The company recognizes the SARs in its financial statements. Assume that the entity follows ASPE.
Instructions
(a) Prepare a five-year (2011 to 2016) schedule of compensation expense pertaining to the 30,000 SARs granted to Brandon Sutton.
(b) Prepare the journal entry for compensation expense in 2012, 2015, and 2016 relative to the 50,000 SARs.
(c) From the perspective of the employee, contrast the features of a stock appreciation right to the features of compensatory stock options.
(d) Discuss what a performance-type compensation plan is, giving examples.