Question 1

On Jan 1, Year 1, a company grants 1,000 Stock Appreciation Rights (SARs) to an executive. The SARs settle in cash.
- Service period: 3 years.
- Fair Value per SAR at Dec 31, Year 1: $12.
- Fair Value per SAR at Dec 31, Year 2: $15.

What is the compensation expense for Year 2?

Accepted Answer

Liability Award: Remeasure FV at each reporting date. Calculate cumulative required liability based on % of service complete. Expense = Change in liability.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Calculating expense based on the full FV change without adjusting for the vesting percentage; forgetting to subtract prior year liability.

On Jan 1, Year 1, a company grants 1,000 Stock Appreciation Rights (SARs) to an executive. The SARs settle in cash. <br/>- Service period: 3 years.<br/>- Fair Value per SAR at Dec 31, Year 1: $12.<br/>- Fair Value per SAR at Dec 31, Year 2: $15.<br/><br/>What is the compensation expense for Year 2?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 2

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