1. Courtland Company issues 25,000 SARs entitling executives to receive cash at the date of exercise for the difference between the market price and $30. The fair value of an SAR on the grant date is $4. The service period is 3 years. At the end of Year 3, the Liability for SARs is $125,000. In Year 4 when the market price of the stock is $42, the SARs are exercised. Which of the following is true when the SARs are exercised?,

1. The Liability for SARs is reduced by $300,000.
2. The Liability for SARs is reduced by $1,050,000.
3. The cash outlay for the company is $750,000.
4. The company receives $300,000.