Use the following information for questions.
On January 1, 2016, Luanda Ltd.established a stock appreciation rights plan for its executives.This plan entitles them to receive cash at any time during the next four years for the difference between the market price of its common shares and a pre-established price of $20, on 50,000 SARs.Market prices of the shares are as follows: Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2016.
-On December 31, 2018, 8,000 SARs are exercised by executives.What amount of compensation expense should Luanda recognize for calendar 2018?
A)$65,000
B)$162,500
C)$237,500
D)$487,500

Question

Use the following information for questions.
On January 1, 2016, Luanda Ltd.established a stock appreciation rights plan for its executives.This plan entitles them to receive cash at any time during the next four years for the difference between the market price of its common shares and a pre-established price of $20, on 50,000 SARs.Market prices of the shares are as follows:  Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2016.
-On December 31, 2018, 8,000 SARs are exercised by executives.What amount of compensation expense should Luanda recognize for calendar 2018?
A)$65,000 
B)$162,500 
C)$237,500 
D)$487,500

Quizplus · Accepted Answer

The compensation expense is calculated based on the fair value of the SARs at the grant date and the number of SARs exercised. If 8,000 SARs are exercised, and assuming the fair value per SAR is $29.6875 (as derived from the total compensation expense of $237,500), the compensation expense for 2018 would be $237,500.

Use the Following Information for Questions