On December 31, 2010, Kessler Company granted some of its executives options to purchase 50,000 shares of the company's $10 par ordinary shares at an option price of $50 per share.The options become exercisable on January 1, 2011, and represent compensation for executives' services over a three-year period beginning January 1, 2011.The Black-Scholes option pricing model determines total compensation expense to be $300,000.At December 31, 2011, none of the executives had exercised their options.What is the impact on Kessler's net income for the year ended December 31, 2011 as a result of this transaction under the fair value method?

Question

Quizplus · Accepted Answer

The compensation expense is recognized over the service period. Since the service period is three years, $300,000 is divided by 3, resulting in a $100,000 decrease in net income for 2011.

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