Question

What amount should be recognized as gain on reversal of share appreciation rights on December 31, 2020?...


Copenhagen Company granted 200 share appreciation rights to each of the 500 employees on January 1, 2016. The rights are due to vest on December 31, 2019 with payment being made on December 31, 2020. Only 80% of the awards vest. January 1, 2016 (predetermined price)150 December 31, 2016 : 180 December 31, 2019 : 210 December 31, 2020 : 190 What amount should be recognized as gain on reversal of share appreciation rights on December 31, 2020?

a. 3,200,000

b. 2,000,000

c. 1,600,000

d. 0

e. answer not given

Answer

Journal entry:

Journal entry is the book of original entry where first transactions are recorded in the books of account. In the accounting cycle, the first step an accountant or a bookkeeper follows is the journal entry. It consists of a debit side and credit side balances. Both debit side balance and credit side balance should be matched.

  ANSWER:b    
Date Particulars Debit Credit
Dec 31.2019 Compensation exp.(190-150)*200 x 500 $4,000,000  
  Share appreciation rights liability   $4,000,000
       
Dec 31.2020 Share appreciation rights liability $4,000,000  
  Cash(210-190)*200 x 500   $2,000,000
  Gain on reversal (Bal.fig.)   $2,000,000
       

 

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