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On January 1, 2004, Cater Corp. granted an employee an option to purchase 10,000 shares of Cater's $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $220,000. The option became exercisable on December 31, 2005, after the employee completed two years of service. The market prices of Cater's stock were as follows:

January 1, 2004 $30
December 31, 2005 50

For 2005, Cater should recognize compensation expense under the fair value method of:

a. $150,000.

b. $50,000.

c. $110,000.

d. $0.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M981493

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