On January 1, 2021 Taffy Inc

question 14

Essay

On January 1, 2021 Taffy Inc. granted 210,000 stock appreciation rights (SARs)to its executives. Each SAR entitled its holder to receive cash equal to the difference between the market price of the common share and the benchmark price of $16. The SARs vested after three years and expired on Dec. 31, 2023. On January 1, 2024, 100,000 SARs are exercised. The market price of the shares remained at $20. On January 1, 2025, 50,000 SARS are exercised. The market price of the shares remained at $22. The remaining SARs expired.
Pertinent stock-related data are listed below: Required:
a. Prepare the journal entry at December 31, 2021, to record compensation expense.
b. Prepare the journal entry at December 31, 2022, to record compensation expense.
c. Prepare the journal entry at December 31, 2023, to record compensation expense.
d. Prepare the journal entry at January 1, 2024, to record the partial exercise of the SARs.
e. Prepare the journal entry at December 31, 2024, to record compensation expense.
f. Prepare the journal entry at January 1, 2025, to record the partial exercise of the SARs.
g. Prepare the journal entry at December 31, 2025, to record compensation expense.
h. Prepare the journal entry at December 31, 2026, to record compensation expense.

---

Definitions:

Fair Value Hedge

A hedging strategy aimed at protecting against the risk of changes in the fair value of an asset, liability, or an identified portion of such, that is attributable to a particular risk.

Foreign Exchange Risk

The potential for loss due to fluctuations in currency exchange rates affecting the value of foreign-denominated transactions and investments.

Mexican Pesos

The currency of Mexico, represented symbolically as MXN and used in financial transactions within the country.

Forward Contract

An individualized agreement allowing two parties to trade an asset at an agreed-upon price on a specified future date.