As part of its stock-based compensation package, International Electronics granted 20 million stock appreciation rights (SARs) to top officers on January 1, 2016. At exercise, holders of the SARs are entitled to receive cash or stock equal in value to the excess of the market price at exercise over the share price at the date of grant. The SARs cannot be exercised until the end of 2019 (vesting date) and expire at the end of 2021. The $1 par common shares have a market price of $50 per share on the grant date. The fair value of the SARs, estimated by an appropriate option pricing model, is $2.0 per SAR at January 1, 2016. The fair value re-estimated at December 31, 2016, 2017, 2018, 2019, and 2020, is $3.0, $2.0, $4, $2.2, and $3.00, respectively. All recipients are expected to remain employed through the vesting date.
Required:
1. to 3.
Prepare the appropriate journal entries pertaining to the SARs on January 1, 2016 and December 31, 2016 - December 31, 2019. The SARs remain unexercised on December 31, 2020, prepare the appropriate entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal place (i.e., 5,550,000 should be entered as 5.50).)
1. Record the award of 20 million SARs on January 1, 2016 when the market price of the stock is $50 per share and the fair value of the SARs is $2 per SAR.
2. Record any necessary journal entry on December 31, 2016 when the fair value of the SARs is estimated at $3 per SAR.
3. Record any necessary journal entry on December 31, 2017 when the fair value of the SARs is estimated at $2 per SAR.
4. Record any necessary journal entry on December 31, 2018 when the fair value of the SARs is estimated at $4 per SAR.
5. Record any necessary journal entry on December 31, 2019 when the fair value of the SARs is estimated at $2.20 per SAR.
6. Record any necessary journal entry on December 31, 2020 when the fair value of the SARs is estimated at $3.00 per SAR.
4.
The SARs are exercised on June 6, 2021, when the share price is $65, and executives choose to receive the market price appreciation in cash. Prepare the appropriate journal entry(s) on that date. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
1. Record any necessary adjustment to compensation expense.
2. Record the payment of cash.