Just In Co. issues 500,000 SARs to its eight-member top management group. These SARs allow the managers to receive a cash payment, after holding the SARs for five years. The SARs vest on the payment date. The value of the SARs is calculated as the difference between the \(\$ 34\) per share fair market value of 500,000 common shares on the date the SARs were issued, and the fair market value on the date of payment. The company estimates that six of eight managers will remain with the company over the five-year period. This estimate remains unchanged over the first four years. One manager leaves after year 2, one after year 3, and one in year 5, so that only 5 managers were paid at the end of year 5 .

The fair value of one SARs unit was estimated using a valuation model and was, at the end of year \(1, \$ 4\); year \(2, \$ 1\); year \(3, \$ 2\); year \(4, \$ 17\); and in year 5 , the actual market price of common shares was \(\$ 53\).

Required:
1. Why are SARs issued instead of common stock options?
2. How much compensation expense would be recorded in each of years 1 to 5?
3. What would appear on the SFP at the end of each of years 1 to 4 ?
4. What entry would be made on the maturity (payment) of the SARs?
5. Describe how the accounting for this compensation scheme would be different if the employees could choose between cash and shares at settlement.