On December 31, 2010, Gonzalez Company granted some of its executives options to purchase 100,000 shares of the company's $10 par ordinary shares at an option price of $50 per share.The Black-Scholes option pricing model determines total compensation expense to be $750,000.The options become exercisable on January 1, 2011, and represent compensation for executives' services over a three-year period beginning January 1, 2011.At December 31, 2011 none of the executives had exercised their options.What is the impact on Gonzalez's net income for the year ended December 31, 2011 as a result of this transaction under the fair value method?

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The fair value method requires companies to record compensation expense based on the fair value of the options granted. In this case, the total compensation expense is $750,000, which represents the fair value of the options granted. Since none of the executives had exercised their options by December 31, 2011, there is no impact on net income for the year ended December 31, 2011. However, the compensation expense will be recognized over the three-year service period beginning January 1, 2011, which will result in a $250,000 decrease in net income each year for the next three years.

On December 31, 2010, Gonzalez Company Granted Some of Its