Question: Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2010, which entitles executives to receive cash at the date of exercise for the

Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2010, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of $20 on 5,000 SARs. The required service period is 2 years. The fair value of the SARs is determined to be $4 on December 31, 2010, and $9 on December 31, 2011. Compute Ferraro’s compensation expense for 2010 and 2011.

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