Schmidt Electronics Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, options were granted for 80,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years.The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $4 based upon an option pricing model.

At the end of the first year, it is expected that 100% of employees will exercise the options. By the end of Year 2, it is expected that only 80% of th e toptions will be exercised. Schmidt chooses to adjust the fair value o f the options for the estimated forfeitures.

What is the journal entry to record compensation expense for year 2?

A. Compensation Expense ----- 64,0000

-------------- APIC - Stock Option ---------- 64,0000

B. Compensation Expense ----- 64,0000

-------------- Deferred Compensation ---------- 64,0000

C. Deferred Compensation ----- 64,0000

-------------- Compensation Expense ---------- 64,0000

A. Compensation Expense ----- 256,0000

-------------- Deferred Compensation ---------- 256,0000