A15-18 Share-based Compensation; Cash-Settled: Pine Resources Ltd. has a SARs program for managers. These individuals receive a cash payment after four years of service, calculated as the excess of share price over $5. In early 20X1, individuals in the 25-member management team are granted a total of 100,000 SARS units. The payment is made at the end of 20X4. Data on estimated and actual retention are: End of Year 20X1 20X2 20X3 20X4 Employees expected to remain until vesting 15 (60%) 20 (80%) 22 (88%) n/a Employees expected to forfeit 10 (40%) 5 (20%) 3 (12%) n/a Employees actually forfeiting in the year 2 0 1 1 Employees actually receiving SARS (25 4) 21 (84%) The fair value of the entire 100,000 units was estimated to be $100,000 at the end of 20X1, $300,000 at the end of 20X2, and $120,000 at the end of 20X3. The actual share price was $7.40 at the end of 20X4. Page 1102 Required: 1. Calculate compensation expense in each year of the SARs plan and the balance of the SARs liability at the end of each year. 2. What evidence suggests that the level of retention must be revised after 20X1 and 20X2? 3. Explain why compensation expense is volatile