Barrett Limited established a stock appreciation rights program that entitled its new president, Angela Murfitt, to receive cash for the difference between the Barrett Limited common shares' fair value and a pre-established price of $32 (also fair value on December 31, 2013), on 40,000 SARs. The date of grant is December 31, 2013, and the required employment (service) period is four years. The common shares' fair value fluctuated as follows: December 31, 2014, $36; December 31, 2015, $40; December 31, 2016, $45; December 31, 2017, $36; December 31, 2018, $48. Barrett Limited recognizes the SARs in its financial statements. Angela Murfitt exercised half of the SARs on June 1, 2019 when the share price was $46. Assume that Barrett follows ASPE.
Instructions
(a) Prepare a five-year (2014 to 2018) schedule of compensation expense pertaining to the 40,000 SARs granted to Murfitt.
(b) Prepare the journal entry for compensation expense in 2014, 2017, and 2018 pertaining to the 40,000 SARs.
(c) Prepare the entry at June 1, 2019, for the exercise of the SARs.
(d) If Barrett Limited was a publicly accountable entity, would your answer to part (a) differ? Explain.
(e) From the perspective of an investor, comment on the effect of Barrett's SARs program on the company's reported profit, for the years 2014 to 2018.