On January 1, 2009, Blue Inc

On January 1, 2009, Blue Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Blue initially estimates that it is not probable the goal will be achieved, but in 2010, after one year, Blue estimates that it is probable that divisional revenue will increase by 6% by the end of 2011. Ignoring taxes, what is the effect on earnings in 2010?

A) $200,000
B) $400,000
C) $600,000
D) $800,000 In 2010, the revised estimate of the total compensation would change from zero to 200,000 $6 = $1,200,000.Blue would reflect the cumulative effect on compensation in 2010 earnings and record compensation thereafter: