On December 31, 2007, Flessel Company issues 120,000 share appreciation rights to its officers entitling them to receive cash for the difference between the market price of its shares and a pre-established price of $10. The fair value of the SARs is estimated to be $4 per SAR on December 31, 2008; $1 on December 31, 2009; $11 on December 31, 2010; and $9 on December 31, 2011. The service period is 4 years, and the exercise period is 7 years.
(a) Prepare a schedule that shows the amount of compensation expense allocable to each year affected by the share-appreciation rights plan.
(b) Prepare the entry at December 31, 2011, to record compensation expense, if any, in 2011.
(c) Prepare the entry on December 31, 2011, assuming that all 120,000 SARs are exercised.