On December 31, 20x0, Flessel Company issues 120,000 stock-appreciation rights to its officers entitling them to receive cash for the difference between the market price of its stock and a pre-established price of $10. The market value of the companys stock is $14 per share on December 31, 20x1; $11 on December 31, 20x2; $21 on December 31, 20x3; and $19 on December 31, 20x4. Although the exercise period is 7 years, the estimated service period is 4 years.

Instructions:

(a) Prepare a schedule that shows the amount of compensation expense allocable to each year affected by the stock-appreciation rights plan.

(b) Prepare the entry at December 31, 20x4, to record compensation expense, if any, in 20x4.

(c) Prepare the entry on December 31, 20x4, assuming that all 120,000 SARs are exercised.