Question

Lion Company granted 30,000 share appreciation rights which entitled key employees to receive cash equal to the differen...


Lion Company granted 30,000 share appreciation rights which entitled key employees to receive cash equal to the difference between P20 and the market price of the share on the date each right is exercised. The service period is 2019 through 2021, and the rights are exercisable in 2022. The market price of the share was P25 and P28 on December 31, 2019 and 2020, respectively. How much should be recorded as compensation expense for 2020?

a. 150,000

b. 120,000

c. 110,000

d. 10,000

e. answer not given

Answer

The answer is e -  not given

The stock options plans are the benefit plans that are specifically designed for the managers of the organizations. If the price of the stock rises, then the managers will enjoy the profits and if the price goes down then the managers will not buy that stock.

Stock Options = 30,000

Excercise Price =$20

Market Price on 31 December 2020 =$28

Service Period = 3 years (2019 to 2021)

Total liability under stock appreciation right plan to be reported in the balance sheet as at 31 December 2020

= 30,000 * (28 -20)* 2÷3

= $240,000*2÷3

= $160,000

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