Olympia Company establishes a stock appreciation rights program that entitles its new CEO to receive cash for the difference between the market price of the stock and a pre-established price of $20 (also market price) on December 31, 2013, on 50,000 stock appreciation rights. The date of grant is December 31, 2010, and the required employment (service) period is 3 years. The CEO exercises all of the SARs on December 31, 2013. The market value of the stock fluctuates as follows: $19 on December 31, 2014; $23 on December 31, 2015; and $25 on December 31, 2016.

Instructions

(a) Prepare a 3-year (2014–2016) schedule of compensation expense pertaining to the 50,000 SARs granted the CEO.

(b) Prepare the journal entry for compensation expense in 2014, 2015, and 2016 relative to the 50,000 SARs.

(c) Prepare the entry for the exercise of the SARs on December 31, 2016.