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Just In Company issues 280,000 SARS units to its 10 member t receive a cash payment after holding the SARS for five years. T calculated as the difference between the $21 per share fair ma issued and the fair market value on the date of payment. The company over the five-year period. This estimate remains unch 2, one after Year 3, and one in Year 5, so that only five manage The fair value of one SARS unit was estimated using a valuation $6; Year 4, $21; and in Year 5, the actual market price of comm Required: 1. Not available in Connect. 2. How much compensation expense would be recorded in ea

Just In Company issues 280,000 SARS units to its 10 member t receive a cash payment after holding the SARS for five years. T calculated as the difference between the $21 per share fair ma issued and the fair market value on the date of payment. The company over the five-year period. This estimate remains unch 2, one after Year 3, and one in Year 5, so that only five manage The fair value of one SARS unit was estimated using a valuation $6; Year 4, $21; and in Year 5, the actual market price of comm Required: 1. Not available in Connect. 2. How much compensation expense would be recorded in ea

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Just In Company issues 280,000 SARS units to its 10 member top management group. These SARS allow the managers to receive a cash payment after holding the SARS for five years. The SARS vest on the payment date. The value of the SARS is calculated as the difference between the $21 per share fair market value of common shares on the date the SARS were issued and the fair market value on the date of payment. The company estimates that 7 of 10 managers will remain with the company over the five-year period. This estimate remains unchanged over the first four years. One manager leaves after Year 2, one after Year 3, and one in Year 5, so that only five managers were paid at the end of Year 5. The fair value of one SARS unit was estimated using a valuation model and was, at the end of Year 1, $5; Year 2, $2; Year 3, $6; Year 4, $21; and in Year 5, the actual market price of common shares was $59. Required: 1. Not available in Connect. 2. How much compensation expense would be recorded in each of Years 1 to 5? (Do not round intermediate calculations. Enter recoveries (if any) with a minus sign.) Year Fraction Retention Fair value Current balance Compensation expense $1,400,000 No 1 1 1/5 70 $ $ 1,400,000 Year Cumulative amount SARS Liability % Transaction 1 2 2/5 70 $ 560,000 $ 1,400,000 $ (840,000) % 3 3/5 70 $ 1,680,000 $ 560,000 $ 1,120,000 Long-term compensation liability Cash % General Journal 3. What would appear on the SFP at the end of each of Years 1 to 4? (Do not round intermediate calculations.) 1 2 3 $ 196,000 $ 156,800 $ 705,600 $3,292,800 4/5 70 $ 5,880,000 $ 1,680,000 X $ 4,200,000 % 4. What entry would be made on the maturity (payment) of the SARS? Assume that years' entry for expense has been already made. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 5 5/10 70.0 $10,640,000 $ 5,880,000 X $ 4,760,000 Debit 3,724,000 Credit % 3,724,000
Transcribed Image Text:Just In Company issues 280,000 SARS units to its 10 member top management group. These SARS allow the managers to receive a cash payment after holding the SARS for five years. The SARS vest on the payment date. The value of the SARS is calculated as the difference between the $21 per share fair market value of common shares on the date the SARS were issued and the fair market value on the date of payment. The company estimates that 7 of 10 managers will remain with the company over the five-year period. This estimate remains unchanged over the first four years. One manager leaves after Year 2, one after Year 3, and one in Year 5, so that only five managers were paid at the end of Year 5. The fair value of one SARS unit was estimated using a valuation model and was, at the end of Year 1, $5; Year 2, $2; Year 3, $6; Year 4, $21; and in Year 5, the actual market price of common shares was $59. Required: 1. Not available in Connect. 2. How much compensation expense would be recorded in each of Years 1 to 5? (Do not round intermediate calculations. Enter recoveries (if any) with a minus sign.) Year Fraction Retention Fair value Current balance Compensation expense $1,400,000 No 1 1 1/5 70 $ $ 1,400,000 Year Cumulative amount SARS Liability % Transaction 1 2 2/5 70 $ 560,000 $ 1,400,000 $ (840,000) % 3 3/5 70 $ 1,680,000 $ 560,000 $ 1,120,000 Long-term compensation liability Cash % General Journal 3. What would appear on the SFP at the end of each of Years 1 to 4? (Do not round intermediate calculations.) 1 2 3 $ 196,000 $ 156,800 $ 705,600 $3,292,800 4/5 70 $ 5,880,000 $ 1,680,000 X $ 4,200,000 % 4. What entry would be made on the maturity (payment) of the SARS? Assume that years' entry for expense has been already made. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 5 5/10 70.0 $10,640,000 $ 5,880,000 X $ 4,760,000 Debit 3,724,000 Credit % 3,724,000
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