Question

On March 31, 20x2, Wesley Inc, granted 100,000 share appreciation rights to its employees. The payout formula is equal to the difference in the share price on the date of exercise less the share price on the date of grant. The vesting period ends on September 30, 20x4 and the exercise period ends on October 31, 20x3. Data on the fair values of the SAR's, the average cash out amount, the mumber of SAR's exercised, and management's estimate of the % of SAR's that will vest is as follows: Fair Value of each SAR at year-end Average cash out for exercised SARs during the year Amount of SARs exercised Date December 31, 20x2 December 31, 20x3 December 31, 20x4 October 31, 20x5 Estimate of % of SARs that will vest 85% 80% 82% 65.000 17,000 Actual percentage of SARs that have vested. Required - Write all journal entries to record the above transactions.

Answer 1

Let us work out year wise detail as under :

Date	Opening balance of accrual	Paid	Differential accrual made for short fall	Fair value	% of SAR that will vest	Number of shares estimated to vest	Total estimated liability	Already accured	Balance to be accrued	Remaining month	No. of Month accrual for the period	Accrual to be made in the year	Closing balance of accrual
12/31/20X2	-			9	1	85,000	765,000	-	765,000	42	9	163,929	163,929
12/31/20x3	163,929	-	-	12	1	80,000	960,000	163,929	796,071	30	12	318,429	482,357
12/31/20X4	482,357	520,000	37,643	5	1	28,700	143,500	-	143,500	18	12	95,667	95,667
12/31/20X5	95,667	272,000	176,333	-

Following are JVs including JVs related to payments which would have been happened during the year for payment of SARs :

Date	Accounts	Debit	Credit
12/31/20X2	Salary A/c	163,929
	SAR Payable		163,929
	(SAR liability for 31 Dec 20X2)
12/31/20x3	Salary A/c	318,429
	SAR Payable		318,429
	(SAR liability for 31 Dec 20X3)
12/31/20X4	SAR Payable	520,000
	To Cash		520,000
	(Payment of 65000 SAR at 8)
12/31/20X4	Salaries A/c	37,643
	SAR Payable		37,643
	(Shortfall SAR liability falling short to payment accounted)
12/31/20X4	Salary A/c	95,667
	SAR Payable		95,667
	(SAR liability for 31 Dec 20X4)
09/30/20X5	SAR Payable	272,000
	To Cash		272,000
	(Payment of 17000 SAR at 16)
09/30/20X5	Salaries A/c	176,333
	SAR Payable		176,333
	(Shortfall SAR liability falling short to payment accounted)