On December 31, 2015, 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, 2016, and represent compensation for executives' services over a three-year period beginning January 1, 2016.At December 31, 2016 none of the executives had exercised their options.What is the impact on Gonzalez's net income for the year ended December 31, 2016 as a result of this transaction under the fair value method?

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Quizplus · Accepted Answer

The compensation expense is recognized over the service period. For 2016, one-third of the total compensation expense ($750,000) is recognized, resulting in a $250,000 decrease in net income.

On December 31, 2015, Gonzalez Company Granted Some of Its