CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

On January 1, 2011, Unified Systems granted its division managers 100,000 stock appreciation rights. The SARs are exercisable no sooner than December 31, 2014 and expire on January 1, 2018. Upon exercise, the division managers can elect to receive cash or common stock equal to the excess of the stock's market price on the exercise date over the market price on the grant date. The market price of Unified's stock was as follows:

January 1, 2011: $30.
December 31, 2011: $34.
December 31, 2012: $36.

As a result of the stock appreciation rights, Unified should recognize compensation expense for 2012 of:
A. $0
B. $150,000
C. $200,000
Explanation: Liability at December 31, 2012 = $300,000 [($36 - 30) x 100,000 x 2/4]. Liability at December 31, 2011 = $100,000 [($34 - 30) x 100,000 x 1/4]. The 2012 expense is the difference between the two.

User Contributed Comments 5

User Comment
HenryQ I was just thinking about (36-24)*10000.
dblueroom 2/4 referring to 2 dollar appreciation during 04 over $4 in 03? what about 1/4?
DZ2008 the 2/4 actually refers to the accumulated liability, not the annual expense ... since 2 years have passed, they use 2/4 - then subtract the expense from year 1, to find out what the expense for year 2 must be
malawyer look in cfa book p. 119 - proposed solution is correct
Allstats Yep. The answer is correct. Annoying that this doesn't get much of a run in the text so we can work through more examples
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