As part of its incentive based (qualified) stock compensation package, Keyes Incorporated granted 1,000,000 stock appreciation rights (SARs) to top officers on January 1, 2020. The annual expected forfeiture rate is 4%. At exercise, holders of the SARs are entitled to receive 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 2022 (vesting date) and expire at the end of 2029. The $1 par common shares have a market price of $30 per share on the grant date. The fair value of the SARs, estimated based on the lattice model, is $14.75 per SAR at January 1, 2020. The fair values estimated for December 31, 2020, 2021, and 2022, are $10.00, 25.00, and $14.50, respectively. Part 1: Prepare the appropriate journal entry to record the award of the SARs on January 1, 2010.
Part 2: Prepare the appropriate journal entries pertaining to these SARs on December 31, 2010, December 31, 2011 and December 31, 2012. Assume there was no change from the expected forfeiture rate.
Part 3: Prepare the journal entry if all the SARs were exercised on January 2, 2013 when the market price per share is $45.00. Assume there was no change from the expected forfeiture rate.